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T e c h n o l o g y & T e a m w o r k
F M C T E C H N O L O G I E S I N C 2 0 0 4 A N N U A L R E P O R T
As reported in accordance with GAAP $ 116.7 $ 1.68
Unusual Items
Less: Gain on conversion of investment in MODEC International LLC (36.1) (0.52)
Plus: Goodwill impairment 6.1 0.09
Adjusted income, a non-GAAP measure $ 86.7 $ 1.25
Management reports its financial results in accordance with generally accepted accounting principles (“GAAP”). However, management believes that certain non-GAAP performance measures utilized for internal analysis provide financial statement users meaningful comparisons between current and prior period results, as well as important information regard-ing performance trends. This non-GAAP financial measure may be inconsistent with similar measures presented byother companies. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for,the Company’s reported results.
Twelve months ended December 31, 2004
Net Income Per Diluted Share
Financial
Financial Highlights1
(1) Net debt consists of short-term debt, long-term debt and the current portion of long-term debt, less cash and cash equivalents.(2) Order backlog is calculated as the estimated sales value of unfilled, confirmed customer orders at the reporting date.
airport systems 10%
energy processing systems 18%
foodtech 19%
energy production systems 53%
$2.8B2004 revenues
H i g h l i g h t s
Reconciliation of Non-GAAP Measure to Earnings Reported in Accordance with GAAP
2004 2003
Total Revenue $ 2,767.7 $ 2,307.1
Net income $ 116.7 $ 68.9
Adjusted net income, a non-GAAP measure $ 86.7 —
Diluted earnings per share:
Net income $ 1.68 $ 1.03
Adjusted net income, a non-GAAP measure $ 1.25 —
Financial and other data:
Common stock price range $ 34.50 - $ 21.97 $ 24.60 - $ 17.94
At December 31 Net debt(1) $ 39.0 $ 192.5
Order backlog(2) $ 1,587.1 $ 1,258.4
Number of employees 9,000 8,600
(In millions, except per share, common stock and employee data)
FMC Technologies, Inc. is a global leader providing mission-
critical solutions, based on innovative, industry-leading
technologies, for the energy, food processing and air
transportation industries. The Company designs, manufactures
and services sophisticated systems and products for its
customers through its Energy Systems (comprising Energy
Production Systems and Energy Processing Systems),
FoodTech and Airport Systems businesses. FMC Technologies
operates 31 manufacturing facilities in 16 countries.
An artist’s concept of FMC Technologies’ subsea production
system layout for Norsk Hydro’s Ormen Lange project in the North
Sea illustrates the placement of subsea trees and associated
structures. With reserves estimated at more than 14 trillion cubic
feet, Ormen Lange is the second largest gas field on the
Norwegian Continental Shelf.
corporate profile
about the cover
As reported in accordance with GAAP $ 116.7 $ 1.68
Unusual Items
Less: Gain on conversion of investment in MODEC International LLC (36.1) (0.52)
Plus: Goodwill impairment 6.1 0.09
Adjusted income, a non-GAAP measure $ 86.7 $ 1.25
Management reports its financial results in accordance with generally accepted accounting principles (“GAAP”). However, management believes that certain non-GAAP performance measures utilized for internal analysis provide financial statement users meaningful comparisons between current and prior period results, as well as important information regard-ing performance trends. This non-GAAP financial measure may be inconsistent with similar measures presented byother companies. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for,the Company’s reported results.
Twelve months ended December 31, 2004
Net Income Per Diluted Share
Financial
Financial Highlights1
(1) Net debt consists of short-term debt, long-term debt and the current portion of long-term debt, less cash and cash equivalents.(2) Order backlog is calculated as the estimated sales value of unfilled, confirmed customer orders at the reporting date.
airport systems 10%
energy processing systems 18%
foodtech 19%
energy production systems 53%
$2.8B2004 revenues
H i g h l i g h t s
Reconciliation of Non-GAAP Measure to Earnings Reported in Accordance with GAAP
2004 2003
Total Revenue $ 2,767.7 $ 2,307.1
Net income $ 116.7 $ 68.9
Adjusted net income, a non-GAAP measure $ 86.7 —
Diluted earnings per share:
Net income $ 1.68 $ 1.03
Adjusted net income, a non-GAAP measure $ 1.25 —
Financial and other data:
Common stock price range $ 34.50 - $ 21.97 $ 24.60 - $ 17.94
At December 31 Net debt(1) $ 39.0 $ 192.5
Order backlog(2) $ 1,587.1 $ 1,258.4
Number of employees 9,000 8,600
(In millions, except per share, common stock and employee data)
FMC Technologies, Inc. is a global leader providing mission-
critical solutions, based on innovative, industry-leading
technologies, for the energy, food processing and air
transportation industries. The Company designs, manufactures
and services sophisticated systems and products for its
customers through its Energy Systems (comprising Energy
Production Systems and Energy Processing Systems),
FoodTech and Airport Systems businesses. FMC Technologies
operates 31 manufacturing facilities in 16 countries.
An artist’s concept of FMC Technologies’ subsea production
system layout for Norsk Hydro’s Ormen Lange project in the North
Sea illustrates the placement of subsea trees and associated
structures. With reserves estimated at more than 14 trillion cubic
feet, Ormen Lange is the second largest gas field on the
Norwegian Continental Shelf.
corporate profile
about the cover
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Performance Review3FMC Technologies Inc. Annual Report 2004 2
Revenue $M Operating Profit $M Inbound Orders/Order Backlog $M Capital Employed *$M
E n e r g y P r o d u c t i o n S y s t e m s
• Energy Production Systems’ sales of $1.5B grew 31% from 2003 on the strength of subsea systems and floating production systems.
• Subsea sales have more than doubled since 2001, reaching over $1B in 2004.
• Operating profit in 2004 of $71.1M grew 8% from 2003, even with a $21.4M loss due to weather-related costs on a floating production project offshore Algeria.
• Inbound orders in 2004 increased 53% from 2003, reaching over $1.8B, due to record subseaorders. Order backlog of over $1.2B provides a solid platform for 2005.
• Low investment requirements for subsea allowed significant growth without increasing capital employed.
F o o d T e c h
• FoodTech sales of $526M were essentially flat compared to 2003. Strong volume in the NorthAmerican and Asian freezing and cooking markets was offset by reduced food processing equip-ment sales and lower citrus revenue due to the Florida hurricanes’ impact.
• Operating profit in 2004 of $36.8M was below 2003, due to lower citrus profit and lower foodprocessing equipment sales.
• Inbound orders of $551M increased slightly over 2003, but strong fourth quarter 2004 inboundresulted in record year-end backlog of $143M.
• Capital requirements remained fairly level for 2003.
A i r p o r t S y s t e m s
• Airport Systems’ sales of $280M grew 25% from 2003 on increased demand for Jetway® passen-ger boarding bridges and ground support equipment.
• Operating profit in 2004 of $16M grew 29% from 2003 on increased volume and improved operating margins in both Jetway® and ground support products.
• Inbound orders of $270M increased 12% from 2003 on greater demand for Jetway® passengerboarding bridges and ground support equipment.
• Capital employed increased to $78M, due to the effects on working capital of a changing customer mix.
All years at December 31.
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PerformanceR e v i e w
E n e r g y P r o c e s s i n g S y s t e m s
• Energy Processing Systems’ sales of $493M grew 14% from 2003 on increased demand forWECO®/Chiksan® equipment and strong demand for measurement and material handling systems.
• Operating profit in 2004 of $27.4M includes a $6.5M charge for the impairment of goodwill in the blending and transfer product line. Operating profit improved in other product lines due tosales volume and operating margin improvements, specifically in WECO®/Chiksan® equipment and measurement and material handling systems.
• Inbound orders of $461M were up slightly from 2003 on strong demand for WECO®/Chiksan®
equipment and measurement systems. Backlog fell below the 2003 level, due to delayed orders forloading systems and the absence of large projects in material handling systems.
• Capital employed declined in 2004, primarily on lower working capital requirements.
* See discussion of capital employed on page 100.
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Performance Review3FMC Technologies Inc. Annual Report 2004 2
Revenue $M Operating Profit $M Inbound Orders/Order Backlog $M Capital Employed *$M
E n e r g y P r o d u c t i o n S y s t e m s
• Energy Production Systems’ sales of $1.5B grew 31% from 2003 on the strength of subsea systems and floating production systems.
• Subsea sales have more than doubled since 2001, reaching over $1B in 2004.
• Operating profit in 2004 of $71.1M grew 8% from 2003, even with a $21.4M loss due to weather-related costs on a floating production project offshore Algeria.
• Inbound orders in 2004 increased 53% from 2003, reaching over $1.8B, due to record subseaorders. Order backlog of over $1.2B provides a solid platform for 2005.
• Low investment requirements for subsea allowed significant growth without increasing capital employed.
F o o d T e c h
• FoodTech sales of $526M were essentially flat compared to 2003. Strong volume in the NorthAmerican and Asian freezing and cooking markets was offset by reduced food processing equip-ment sales and lower citrus revenue due to the Florida hurricanes’ impact.
• Operating profit in 2004 of $36.8M was below 2003, due to lower citrus profit and lower foodprocessing equipment sales.
• Inbound orders of $551M increased slightly over 2003, but strong fourth quarter 2004 inboundresulted in record year-end backlog of $143M.
• Capital requirements remained fairly level for 2003.
A i r p o r t S y s t e m s
• Airport Systems’ sales of $280M grew 25% from 2003 on increased demand for Jetway® passen-ger boarding bridges and ground support equipment.
• Operating profit in 2004 of $16M grew 29% from 2003 on increased volume and improved operating margins in both Jetway® and ground support products.
• Inbound orders of $270M increased 12% from 2003 on greater demand for Jetway® passengerboarding bridges and ground support equipment.
• Capital employed increased to $78M, due to the effects on working capital of a changing customer mix.
All years at December 31.
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Inbound BacklogLegend
PerformanceR e v i e w
E n e r g y P r o c e s s i n g S y s t e m s
• Energy Processing Systems’ sales of $493M grew 14% from 2003 on increased demand forWECO®/Chiksan® equipment and strong demand for measurement and material handling systems.
• Operating profit in 2004 of $27.4M includes a $6.5M charge for the impairment of goodwill in the blending and transfer product line. Operating profit improved in other product lines due tosales volume and operating margin improvements, specifically in WECO®/Chiksan® equipment and measurement and material handling systems.
• Inbound orders of $461M were up slightly from 2003 on strong demand for WECO®/Chiksan®
equipment and measurement systems. Backlog fell below the 2003 level, due to delayed orders forloading systems and the absence of large projects in material handling systems.
• Capital employed declined in 2004, primarily on lower working capital requirements.
* See discussion of capital employed on page 100.
Shareholders’ Letter5
In all our businesses, technology has reinforced our strong relation-
ships with our customers and led to the formation of enduring customer alliances.
This combination of technology and teamwork is our most distinctive
competitive advantage.
S h a r e h o l d e r s ’ L e t t e r
Shareholders’ Letter5
In all our businesses, technology has reinforced our strong relation-
ships with our customers and led to the formation of enduring customer alliances.
This combination of technology and teamwork is our most distinctive
competitive advantage.
FMC Technologies Inc. Annual Report 2004 6 Shareholders’ Letter7
$36 million while maintaining a
significant ownership stake in
one of the leading Floating
Production Storage and Offshore
(FPSO) system manufacturers in
the world.
• Our focus on working capital
management allowed us to limit
our growth in working capital
during the year. We reduced our
net debt by over $150 million in
2004.
• We were successful in resolving
a series of tax disputes and
tax audits during 2004 that
provided us with $12 million in
lower domestic and foreign
income taxes.
• Our performance on theSonatrach contract within EnergyProduction Systems, which lost$13 million after tax primarily dueto higher costs associated withweather-related delays.
• A series of Florida hurricanesdestroyed a third of the Floridacitrus crop, resulting in the small-est orange crop in 12 years andthe smallest grapefruit crop in 66years. This negatively impactedour FoodTech business in thesecond half of 2004 and is likelyto negatively affect FoodTech inthe first half of 2005.
• A lack of orders for our blendingand transfer business withinEnergy Processing Systems,which created an operating lossand caused us to impair $6.5 million of goodwill associated with the business.
• Our energy businesses, including
both Energy Production Systems
and Energy Processing Systems,
took advantage of growth in oil-
field activity levels by increasing
sales 26 percent over 2003.
• Our subsea systems business,
within Energy Production
Systems, again led the way by
continuing its increase in market
share to report sales of over
$1 billion and orders received
during the year of $1.5 billion.
• Our Airport Systems business
performed well in a difficult airline
industry environment, growing
sales by 25 percent.
• We exchanged our ownership in
MODEC International LLC for
cash and stock in MODEC, Inc.,
realizing an after-tax gain of
from theChairmanand CEO
Joseph H. NetherlandChairman, President andChief Executive Officer, FMC Technologies, Inc.
'01 '02 '03 '040
500
1000
1500
2000
2500
3000
3500
'01 '02 '03 '040
500
1000
1500
2000
Inbound Orders Order Backlog
FMC Technologies had a very good year in 2004. Sales increased 20 percent and earnings
per share were up 63 percent over 2003. As with most years, not everything we did was
successful, but we had many more successes than disappointments. The successes were in
areas that we can continue to build on, and, hopefully, our disappointments are unusual
occurrences that we can avoid in the future.
The successes were:
Net Debt & Sale-Leaseback ObligationsAll Years at December 31
'01 '02 '03 '040
50
100
150
200
250
300
350
Diluted Earnings Per Share
0.0
0.5
1.0
1.5
2.0
'01
$0.77$0.87
$1.03
$1.68
'02 '03 '04
2001 – Adjusted diluted earnings per share, anon-GAAP measure (reconciliation on page 100)
Net debt consists of short-term debt, long-term debt and the currentportion of long-term debt, less cash and cash equivalents.
Energy Production Energy ProcessingNet Debt Sale-Leaseback
$ $M $M $M
The disappointments were:
FoodTech Airport Systems
FMC Technologies Inc. Annual Report 2004 6 Shareholders’ Letter7
$36 million while maintaining a
significant ownership stake in
one of the leading Floating
Production Storage and Offshore
(FPSO) system manufacturers in
the world.
• Our focus on working capital
management allowed us to limit
our growth in working capital
during the year. We reduced our
net debt by over $150 million in
2004.
• We were successful in resolving
a series of tax disputes and
tax audits during 2004 that
provided us with $12 million in
lower domestic and foreign
income taxes.
• Our performance on theSonatrach contract within EnergyProduction Systems, which lost$13 million after tax primarily dueto higher costs associated withweather-related delays.
• A series of Florida hurricanesdestroyed a third of the Floridacitrus crop, resulting in the small-est orange crop in 12 years andthe smallest grapefruit crop in 66years. This negatively impactedour FoodTech business in thesecond half of 2004 and is likelyto negatively affect FoodTech inthe first half of 2005.
• A lack of orders for our blendingand transfer business withinEnergy Processing Systems,which created an operating lossand caused us to impair $6.5 million of goodwill associated with the business.
• Our energy businesses, including
both Energy Production Systems
and Energy Processing Systems,
took advantage of growth in oil-
field activity levels by increasing
sales 26 percent over 2003.
• Our subsea systems business,
within Energy Production
Systems, again led the way by
continuing its increase in market
share to report sales of over
$1 billion and orders received
during the year of $1.5 billion.
• Our Airport Systems business
performed well in a difficult airline
industry environment, growing
sales by 25 percent.
• We exchanged our ownership in
MODEC International LLC for
cash and stock in MODEC, Inc.,
realizing an after-tax gain of
from theChairmanand CEO
Joseph H. NetherlandChairman, President andChief Executive Officer, FMC Technologies, Inc.
'01 '02 '03 '040
500
1000
1500
2000
2500
3000
3500
'01 '02 '03 '040
500
1000
1500
2000
Inbound Orders Order Backlog
FMC Technologies had a very good year in 2004. Sales increased 20 percent and earnings
per share were up 63 percent over 2003. As with most years, not everything we did was
successful, but we had many more successes than disappointments. The successes were in
areas that we can continue to build on, and, hopefully, our disappointments are unusual
occurrences that we can avoid in the future.
The successes were:
Net Debt & Sale-Leaseback ObligationsAll Years at December 31
'01 '02 '03 '040
50
100
150
200
250
300
350
Diluted Earnings Per Share
0.0
0.5
1.0
1.5
2.0
'01
$0.77$0.87
$1.03
$1.68
'02 '03 '04
2001 – Adjusted diluted earnings per share, anon-GAAP measure (reconciliation on page 100)
Net debt consists of short-term debt, long-term debt and the currentportion of long-term debt, less cash and cash equivalents.
Energy Production Energy ProcessingNet Debt Sale-Leaseback
$ $M $M $M
The disappointments were:
FoodTech Airport Systems
Shareholders’ Letter9
project and Woodside Energy’s
Chinguetti project, all offshore West
Africa, as well as Statoil’s Tampen
Area project in the North Sea. Higher
costs and extreme weather effects on
the Sonatrach contract limited earn-
ings growth in Energy Production
Systems to 8 percent in 2004.
In our Energy Processing Systems
business, we saw strong demand
from oilfield service companies for our
WECO®/Chiksan® equipment. We
also experienced strong demand in
measurement systems and material
handling systems. Conversely, our
blending and transfer business was
adversely impacted by order post-
ponements. Sales grew 14 percent
over the prior year, and earnings,
which included a $6.5 million goodwill
impairment charge for blending and
transfer, declined by $2.9 million in
2004.
reliabilityOur FoodTech business experienced a
challenging year in 2004 as four hurri-
canes impacted the Florida citrus crop
and our revenue and profits from cit-
rus processing. Consolidation among
the major juice producers increased
competitive pressures on citrus prof-
itability. However, our food processing
systems business experienced a
recovery and improvement in its North
American and Asian markets, particu-
larly in freezing and cooking systems.
FoodTech sales were flat compared
with 2003, and earnings declined
16 percent in 2004.
Airport Systems performed well in
2004 despite a difficult airline industry
environment. Our ground support
equipment business benefited from
the strengthening businesses of inter-
national airlines and ground
handling companies. In addition, we
benefited from incremental volume
improvements in our Jetway® passen-
ger boarding bridge and ground sup-
port equipment businesses. We deliv-
ered 70 Halvorsen cargo loaders in
2004 and received orders from the
U.S. Air Force for product enhance-
ment work and 40 loaders to be deliv-
ered in 2005. Revenues improved 25
percent and operating profit improved
29 percent over 2003.
Cesar Silva de Azevedo (left), Assembly Technician, and
Nivaldo Batista dos Santos, Offshore Technician, inspect a
subsea tree for Petrobras’ Albacora Leste field. In 2004,
FMC Technologies’ subsea operations in Brazil produced
subsea trees, manifolds, risers and related equipment for
several Petrobras projects, including Roncador. This busi-
ness has supplied 227 subsea trees to the Brazilian oil
industry since 1961.
Jarle Rabben (left), FMC
Technologies Technical Service
Engineer, and Frode Juvik,
Statoil Head Engineer, observe
operations at FMC
Technologies’ subsea service
facilities in Bergen, Norway. In
addition to receiving subsea
equipment orders for Statoil’s
Åsgard-Q, Norne Satellites and
Tampen Area projects in 2004,
FMC Technologies signed an
extension of its existing subsea
service agreement with Statoil.
technologyFMC Technologies Inc. Annual Report 2004 8
In our Energy Production Systems
business, we increased sales in all
businesses as total sales rose 31 percent
over 2003. We delivered subsea sys-
tems for major oil companies such as
BP, Shell and Kerr-McGee in the Gulf
of Mexico, ExxonMobil offshore West
Africa, Petrobras offshore Brazil, and
Statoil in the North Sea. During 2004,
we received orders totaling $1.8 billion,
which included subsea orders for BP’s
Greater Plutonio project, Total’s Rosa
Even including these disappointments,
earnings per share were up 63 per-
cent and we saw in 2004 a 26 percent
increase in order backlog. As I said
before, 2004 was a very good year.
Our stock responded well to our
performance and appreciated over
38 percent in 2004. This compares
favorably with the Oil Service Index
(OSX), which was up 32 percent, and
the S&P 500 Index, which increased
9 percent in 2004. Since our IPO in
2001, our stock price has improved
61 percent compared to an increase
of 2 percent in the OSX and a decline
of 3 percent in the S&P 500 Index
during the same period.
Business performance
From our company’s formation in
2001 through 2004, our growth in
earnings has been driven by our
energy businesses, especially our
subsea business, which has capital-
ized on the secular growth in deep-
water development. Oilfield activity
levels improved in 2004 and had a
positive effect on most of our Energy
Systems businesses. Our Energy
Systems business revenue reached
almost $2 billion in 2004.
Our technology innovations are known throughout the
energy industry.
Shareholders’ Letter9
project and Woodside Energy’s
Chinguetti project, all offshore West
Africa, as well as Statoil’s Tampen
Area project in the North Sea. Higher
costs and extreme weather effects on
the Sonatrach contract limited earn-
ings growth in Energy Production
Systems to 8 percent in 2004.
In our Energy Processing Systems
business, we saw strong demand
from oilfield service companies for our
WECO®/Chiksan® equipment. We
also experienced strong demand in
measurement systems and material
handling systems. Conversely, our
blending and transfer business was
adversely impacted by order post-
ponements. Sales grew 14 percent
over the prior year, and earnings,
which included a $6.5 million goodwill
impairment charge for blending and
transfer, declined by $2.9 million in
2004.
reliabilityOur FoodTech business experienced a
challenging year in 2004 as four hurri-
canes impacted the Florida citrus crop
and our revenue and profits from cit-
rus processing. Consolidation among
the major juice producers increased
competitive pressures on citrus prof-
itability. However, our food processing
systems business experienced a
recovery and improvement in its North
American and Asian markets, particu-
larly in freezing and cooking systems.
FoodTech sales were flat compared
with 2003, and earnings declined
16 percent in 2004.
Airport Systems performed well in
2004 despite a difficult airline industry
environment. Our ground support
equipment business benefited from
the strengthening businesses of inter-
national airlines and ground
handling companies. In addition, we
benefited from incremental volume
improvements in our Jetway® passen-
ger boarding bridge and ground sup-
port equipment businesses. We deliv-
ered 70 Halvorsen cargo loaders in
2004 and received orders from the
U.S. Air Force for product enhance-
ment work and 40 loaders to be deliv-
ered in 2005. Revenues improved 25
percent and operating profit improved
29 percent over 2003.
Cesar Silva de Azevedo (left), Assembly Technician, and
Nivaldo Batista dos Santos, Offshore Technician, inspect a
subsea tree for Petrobras’ Albacora Leste field. In 2004,
FMC Technologies’ subsea operations in Brazil produced
subsea trees, manifolds, risers and related equipment for
several Petrobras projects, including Roncador. This busi-
ness has supplied 227 subsea trees to the Brazilian oil
industry since 1961.
Jarle Rabben (left), FMC
Technologies Technical Service
Engineer, and Frode Juvik,
Statoil Head Engineer, observe
operations at FMC
Technologies’ subsea service
facilities in Bergen, Norway. In
addition to receiving subsea
equipment orders for Statoil’s
Åsgard-Q, Norne Satellites and
Tampen Area projects in 2004,
FMC Technologies signed an
extension of its existing subsea
service agreement with Statoil.
technologyFMC Technologies Inc. Annual Report 2004 8
In our Energy Production Systems
business, we increased sales in all
businesses as total sales rose 31 percent
over 2003. We delivered subsea sys-
tems for major oil companies such as
BP, Shell and Kerr-McGee in the Gulf
of Mexico, ExxonMobil offshore West
Africa, Petrobras offshore Brazil, and
Statoil in the North Sea. During 2004,
we received orders totaling $1.8 billion,
which included subsea orders for BP’s
Greater Plutonio project, Total’s Rosa
Even including these disappointments,
earnings per share were up 63 per-
cent and we saw in 2004 a 26 percent
increase in order backlog. As I said
before, 2004 was a very good year.
Our stock responded well to our
performance and appreciated over
38 percent in 2004. This compares
favorably with the Oil Service Index
(OSX), which was up 32 percent, and
the S&P 500 Index, which increased
9 percent in 2004. Since our IPO in
2001, our stock price has improved
61 percent compared to an increase
of 2 percent in the OSX and a decline
of 3 percent in the S&P 500 Index
during the same period.
Business performance
From our company’s formation in
2001 through 2004, our growth in
earnings has been driven by our
energy businesses, especially our
subsea business, which has capital-
ized on the secular growth in deep-
water development. Oilfield activity
levels improved in 2004 and had a
positive effect on most of our Energy
Systems businesses. Our Energy
Systems business revenue reached
almost $2 billion in 2004.
Our technology innovations are known throughout the
energy industry.
FMC Technologies Inc. Annual Report 2004 10 Shareholders’ Letter11
The growth in adjusted income and
our disciplined capital management
provided a 12.3 percent after-tax
return on investment, which is near
the top of our industry and higher than
most industrial companies. We believe
that earning high returns on the capital
that shareholders entrust to us is one
of our most important jobs and one
that will create shareholder value.
Investments in technology
Throughout our short history as a
separate public company, FMC
Technologies has grown through con-
tinuous improvement in its technology
and teamwork with customers, which
has translated into strong financial
performance. In all our businesses,
technology has reinforced our strong
relationships with our customers and
led to the formation of enduring cus-
tomer alliances. This combination of
technology and teamwork is our most
distinctive competitive advantage, as
evidenced by our leading market
positions in many of the industries in
which we compete.
In 2004, we continued to invest in the
advancement of new technologies
upon which future growth will be
based. Our technology development is
driven by the needs of our customers
and our commitment to provide them
with the most effective solutions for
their challenges.
Our high-pressure/high-temperature
subsea system, capable of operating
under pressures of 15,000 psi and
temperatures up to 350ºF, was
installed in 2004. Employment of this
system on the Na Kika project in the
Gulf of Mexico helped Shell and BP
win a distinguished achievement
award at the 2004 Offshore Tech-
nology Conference. We have provided
subsea systems for seven of the last
eight projects that have received this
prestigious award. At the 2004 confer-
ence, developments in our riserless
light well intervention technology
received a Spotlight on New
Technology award.
We also continued development of an
all-electric subsea production system.
A total of 16 production systems with
electric choke valves operated prob-
lem-free in the North Sea throughout
2004. The all-electric subsea system
will use simpler controls than conven-
tional systems, which rely on
hydraulics.
We advanced our subsea separation
and processing technologies and were
engaged to perform studies for
Petrobras and Statoil designed to
demonstrate our separation technolo-
gy for subsea applications. We have
been conducting independent
research and development activities in
subsea processing technology and
acquired controlling interest in CDS
Engineering for its state-of-the-art
separation technology in 2003. We
believe that subsea processing repre-
sents a long-term growth opportunity
for us.
people
strengthOur joint venture company, GTL
MicroSystems, is moving forward with
commercial development of gas-to-liq-
uids (GTL) technology. When it is com-
mercially developed, our objective is to
enable small volumes of stranded gas
reserves to be converted into liquid
form with a small plant that can be
located on offshore platforms.
We have made a number of technolo-
gy advancements in our measurement
business, particularly with multiphase
metering. Multiphase metering is set-
ting new standards for operational effi-
ciency, in both surface and subsea
environments.
In our FoodTech business, we contin-
ue to improve the efficiency of our cit-
rus extractors, increasing yield and
value for our customers. In 2004, we
introduced a new, more accurate por-
tioner for our chicken processing cus-
tomers that uses 3-D optical technolo-
gy and high-pressure waterjets to cut
Our safetyrecord is among
the best in theindustry.FMC Technologies’ food pro-
cessing solutions include the
M-fryer, the first of a new gen-
eration of immersion fryers
engineered to meet the needs
of global convenience food
processors. The series of fry-
ers is designed to produce uni-
form quality, shorter prepara-
tion times and enhanced food
safety.
poultry. Additionally, we developed
technologies to enable the sterilization
of food packaged in paper containers.
Within our airport equipment busi-
nesses, we focused on development
of our new RampSnake® product,
which is an articulated belt loader for
narrow-body aircraft. It is designed to
promote safer working conditions for
baggage handlers and better produc-
tivity for airlines.
All of these technology advances are
being achieved by working with our
customers to understand their chal-
lenges and develop systems and
products to meet those challenges.
Financial performance
Our diluted earnings per share were
$1.68 in 2004. The reported earnings
for all periods presented include the
expensing of employee stock options.
The 2004 results were impacted by a
number of unusual items. The
exchange of our equity interest in
MODEC International generated a gain
of $0.52 per share. We recorded a
non-cash loss of $0.09 per share for
the impairment of goodwill in our
blending and transfer product line.
After excluding these unusual items,
the remaining adjusted income per
share, a non-GAAP measure (reconcil-
iation on page 100), of $1.25 per
share is comparable to historical earn-
ings. It is a 21 percent improvement
over 2003 and represents an 18 per-
cent annual growth rate since our for-
mation in 2001.
Additionally, in 2004 we had unusually
low income tax expense, primarily due
to favorable resolutions of a tax dis-
pute and foreign tax audits completed
during the year, which nearly offset the
loss on the Sonatrach project.
Our focus on working capital manage-
ment limited the amount of capital
required to support our growing busi-
nesses. Working capital, excluding
cash and debt, increased only
11 percent during 2004. Working cap-
ital discipline, in combination with low
capital expenditures and the proceeds
from the MODEC International conver-
sion, allowed the Company to gener-
ate free cash flow sufficient to reduce
net debt by $154 million. This brought
our net debt to $39 million at year-end
2004. We also continue to benefit
from low-cost debt, having locked in a
2.9 percent interest rate through mid-
2008 for up to $150 million in debt.
0.140.0
0.5
1.0
1.5
2.0
2.5
2003 Average 2004
Manufacturing Industry
1.6
1.2
Oil and Gas Industry
FMC Technologies
2003 Average 2004
Manufacturing Industry
6.8
4.4
0.79
Oil and Gas Industry
FMC Technologies
0
2
4
6
8
10
Lost Workday Injuries and Illnesses
Per 100 Full-Time Workers
Total Recordable Injuries and Illnesses
Per 100 Full-Time Workers
Source: U.S. Bureau of Labor Statistics, FMC Technologies
FMC Technologies Inc. Annual Report 2004 10 Shareholders’ Letter11
The growth in adjusted income and
our disciplined capital management
provided a 12.3 percent after-tax
return on investment, which is near
the top of our industry and higher than
most industrial companies. We believe
that earning high returns on the capital
that shareholders entrust to us is one
of our most important jobs and one
that will create shareholder value.
Investments in technology
Throughout our short history as a
separate public company, FMC
Technologies has grown through con-
tinuous improvement in its technology
and teamwork with customers, which
has translated into strong financial
performance. In all our businesses,
technology has reinforced our strong
relationships with our customers and
led to the formation of enduring cus-
tomer alliances. This combination of
technology and teamwork is our most
distinctive competitive advantage, as
evidenced by our leading market
positions in many of the industries in
which we compete.
In 2004, we continued to invest in the
advancement of new technologies
upon which future growth will be
based. Our technology development is
driven by the needs of our customers
and our commitment to provide them
with the most effective solutions for
their challenges.
Our high-pressure/high-temperature
subsea system, capable of operating
under pressures of 15,000 psi and
temperatures up to 350ºF, was
installed in 2004. Employment of this
system on the Na Kika project in the
Gulf of Mexico helped Shell and BP
win a distinguished achievement
award at the 2004 Offshore Tech-
nology Conference. We have provided
subsea systems for seven of the last
eight projects that have received this
prestigious award. At the 2004 confer-
ence, developments in our riserless
light well intervention technology
received a Spotlight on New
Technology award.
We also continued development of an
all-electric subsea production system.
A total of 16 production systems with
electric choke valves operated prob-
lem-free in the North Sea throughout
2004. The all-electric subsea system
will use simpler controls than conven-
tional systems, which rely on
hydraulics.
We advanced our subsea separation
and processing technologies and were
engaged to perform studies for
Petrobras and Statoil designed to
demonstrate our separation technolo-
gy for subsea applications. We have
been conducting independent
research and development activities in
subsea processing technology and
acquired controlling interest in CDS
Engineering for its state-of-the-art
separation technology in 2003. We
believe that subsea processing repre-
sents a long-term growth opportunity
for us.
people
strengthOur joint venture company, GTL
MicroSystems, is moving forward with
commercial development of gas-to-liq-
uids (GTL) technology. When it is com-
mercially developed, our objective is to
enable small volumes of stranded gas
reserves to be converted into liquid
form with a small plant that can be
located on offshore platforms.
We have made a number of technolo-
gy advancements in our measurement
business, particularly with multiphase
metering. Multiphase metering is set-
ting new standards for operational effi-
ciency, in both surface and subsea
environments.
In our FoodTech business, we contin-
ue to improve the efficiency of our cit-
rus extractors, increasing yield and
value for our customers. In 2004, we
introduced a new, more accurate por-
tioner for our chicken processing cus-
tomers that uses 3-D optical technolo-
gy and high-pressure waterjets to cut
Our safetyrecord is among
the best in theindustry.FMC Technologies’ food pro-
cessing solutions include the
M-fryer, the first of a new gen-
eration of immersion fryers
engineered to meet the needs
of global convenience food
processors. The series of fry-
ers is designed to produce uni-
form quality, shorter prepara-
tion times and enhanced food
safety.
poultry. Additionally, we developed
technologies to enable the sterilization
of food packaged in paper containers.
Within our airport equipment busi-
nesses, we focused on development
of our new RampSnake® product,
which is an articulated belt loader for
narrow-body aircraft. It is designed to
promote safer working conditions for
baggage handlers and better produc-
tivity for airlines.
All of these technology advances are
being achieved by working with our
customers to understand their chal-
lenges and develop systems and
products to meet those challenges.
Financial performance
Our diluted earnings per share were
$1.68 in 2004. The reported earnings
for all periods presented include the
expensing of employee stock options.
The 2004 results were impacted by a
number of unusual items. The
exchange of our equity interest in
MODEC International generated a gain
of $0.52 per share. We recorded a
non-cash loss of $0.09 per share for
the impairment of goodwill in our
blending and transfer product line.
After excluding these unusual items,
the remaining adjusted income per
share, a non-GAAP measure (reconcil-
iation on page 100), of $1.25 per
share is comparable to historical earn-
ings. It is a 21 percent improvement
over 2003 and represents an 18 per-
cent annual growth rate since our for-
mation in 2001.
Additionally, in 2004 we had unusually
low income tax expense, primarily due
to favorable resolutions of a tax dis-
pute and foreign tax audits completed
during the year, which nearly offset the
loss on the Sonatrach project.
Our focus on working capital manage-
ment limited the amount of capital
required to support our growing busi-
nesses. Working capital, excluding
cash and debt, increased only
11 percent during 2004. Working cap-
ital discipline, in combination with low
capital expenditures and the proceeds
from the MODEC International conver-
sion, allowed the Company to gener-
ate free cash flow sufficient to reduce
net debt by $154 million. This brought
our net debt to $39 million at year-end
2004. We also continue to benefit
from low-cost debt, having locked in a
2.9 percent interest rate through mid-
2008 for up to $150 million in debt.
0.140.0
0.5
1.0
1.5
2.0
2.5
2003 Average 2004
Manufacturing Industry
1.6
1.2
Oil and Gas Industry
FMC Technologies
2003 Average 2004
Manufacturing Industry
6.8
4.4
0.79
Oil and Gas Industry
FMC Technologies
0
2
4
6
8
10
Lost Workday Injuries and Illnesses
Per 100 Full-Time Workers
Total Recordable Injuries and Illnesses
Per 100 Full-Time Workers
Source: U.S. Bureau of Labor Statistics, FMC Technologies
Shareholders’ Letter13
resultsPeople and principles
Our success is ultimately determined
by our people. They create technology
that meets customer needs and make
our alliances work. We believe that
nothing is more important than provid-
ing them with a safe place to work.
Our safety record is among the best in
our industries. We also believe that
our commitment to ethics is essential
to maintaining the integrity of our com-
pany with employees, customers,
investors and suppliers. This commit-
ment guides our business dealings,
corporate governance practices and
compliance with regulations such as
the Sarbanes-Oxley legislation.
We are fortunate to have the services
of a capable and experienced man-
agement team and Board of Directors.
In 2004, our management depth was
further strengthened with four key
executive appointments – Peter
Kinnear to Executive Vice President,
Charlie Cannon to Senior Vice
President and John Gremp and Tore
Halvorsen to Vice President. All four
are proven leaders, with distinguished
company and industry backgrounds.
We said farewell to Dolph Bridgewater,
who retired from our Board in 2004.
Although his contribution will be
missed, we will continue to benefit
from the efforts of our other excep-
tionally qualified Board members.
Outlook for 2005
We look forward to a year of solid per-
formance in 2005. Our energy busi-
nesses, driven by the secular growth
of subsea and the continuing high oil-
field activity levels, should have a
strong year. The Airport Systems busi-
ness should see some growth as our
new RampSnake® product debuts
and equipment replacements increase.
FoodTech’s performance will be ham-
pered by the impact of the 2004
Florida hurricanes on the citrus crop.
One of our challenges for the future is
to find a way to utilize our excess cash
to increase shareholder value. We
have recently announced a stock
repurchase program of up to two mil-
lion shares. Additionally, we continue
to look for acquisitions that comple-
ment and build on our current busi-
nesses. We want businesses with
technology that provides unique
advantages and that are available at a
reasonable cost. If we are unable to
find these kinds of acquisition oppor-
tunities, we plan to return the capital
to shareholders through further stock
repurchases or dividends.
Our success is ultimately determined
by our people, such as this techni-
cian at our facilities in Kongsberg,
Norway. They create technology that
meets customer needs and make our
alliances work.
Based on our solid backlog position
and business activity level entering the
year, combined with the dedication of
a talented team of employees, we
believe that 2005 will be another good
year for FMC Technologies.
Sincerely,
Joseph H. Netherland
Chairman, President and Chief
Executive Officer
February 21, 2005
FMC Technologies Inc. Annual Report 2004 12
Customer alliances
A cornerstone of our strategy has
been and continues to be developing
close working relationships with our
customers in all of our businesses. In
our Energy Production Systems busi-
ness, these relationships have taken
the form of alliances, frame agree-
ments and other types of partnerships
on a regional or global basis. We
believe that we have more of these
types of arrangements with key cus-
tomers – such as BP, Shell, Kerr-
McGee, Statoil, Woodside Energy and
Norsk Hydro – than any other compa-
ny in our market sector. We have also
formed collaborative alliances with oil-
field service companies in our Energy
Processing Systems business, air
cargo companies in our Airport
Systems business and citrus proces-
sors in our FoodTech business.
Enfield projects;
CNR’s Baobab proj-
ect; Total’s Rosa proj-
ect; Kerr-McGee’s Red
Hawk and Gunnison proj-
ects; Statoil’s Norne and
Tampen Area projects; and Norsk
Hydro’s Ormen Lange project repre-
sent some of the current projects
where we are solving our customer’s
technical challenges on a day-to-day
basis. At the same time, our alliances
and frame agreements enable us to
invest in technologies that our cus-
tomers need. By working collabora-
tively with our customers, we are able
to assist them in getting the most out
of their oilfields while we strengthen
our own market positions and grow
our businesses.
tomorrow
By partnering
with customers,
we are able to
develop innovative
solutions to the most
significant problems they
face. Our subsea engineers work
alongside our customers’ engineers.
By deeply immersing ourselves in our
customers’ businesses, we are able to
provide them the reliability, practicality
and economy they value. BP’s
Thunder Horse, Atlantis and Greater
Plutonio projects; Shell’s Na Kika,
Coulomb and Llano projects;
Woodside Energy’s Chinguetti and
João Barão (left) and Ricardina
Benjamim, at FMC
Technologies’ Angola facilities,
observe assembly of subsea
equipment for offshore West
Africa projects. In 2004, we
signed subsea system con-
tracts for BP’s Greater
Plutonio, Total’s Rosa and
Woodside Energy’s Chinguetti
projects in this region.
Shareholders’ Letter13
resultsPeople and principles
Our success is ultimately determined
by our people. They create technology
that meets customer needs and make
our alliances work. We believe that
nothing is more important than provid-
ing them with a safe place to work.
Our safety record is among the best in
our industries. We also believe that
our commitment to ethics is essential
to maintaining the integrity of our com-
pany with employees, customers,
investors and suppliers. This commit-
ment guides our business dealings,
corporate governance practices and
compliance with regulations such as
the Sarbanes-Oxley legislation.
We are fortunate to have the services
of a capable and experienced man-
agement team and Board of Directors.
In 2004, our management depth was
further strengthened with four key
executive appointments – Peter
Kinnear to Executive Vice President,
Charlie Cannon to Senior Vice
President and John Gremp and Tore
Halvorsen to Vice President. All four
are proven leaders, with distinguished
company and industry backgrounds.
We said farewell to Dolph Bridgewater,
who retired from our Board in 2004.
Although his contribution will be
missed, we will continue to benefit
from the efforts of our other excep-
tionally qualified Board members.
Outlook for 2005
We look forward to a year of solid per-
formance in 2005. Our energy busi-
nesses, driven by the secular growth
of subsea and the continuing high oil-
field activity levels, should have a
strong year. The Airport Systems busi-
ness should see some growth as our
new RampSnake® product debuts
and equipment replacements increase.
FoodTech’s performance will be ham-
pered by the impact of the 2004
Florida hurricanes on the citrus crop.
One of our challenges for the future is
to find a way to utilize our excess cash
to increase shareholder value. We
have recently announced a stock
repurchase program of up to two mil-
lion shares. Additionally, we continue
to look for acquisitions that comple-
ment and build on our current busi-
nesses. We want businesses with
technology that provides unique
advantages and that are available at a
reasonable cost. If we are unable to
find these kinds of acquisition oppor-
tunities, we plan to return the capital
to shareholders through further stock
repurchases or dividends.
Our success is ultimately determined
by our people, such as this techni-
cian at our facilities in Kongsberg,
Norway. They create technology that
meets customer needs and make our
alliances work.
Based on our solid backlog position
and business activity level entering the
year, combined with the dedication of
a talented team of employees, we
believe that 2005 will be another good
year for FMC Technologies.
Sincerely,
Joseph H. Netherland
Chairman, President and Chief
Executive Officer
February 21, 2005
FMC Technologies Inc. Annual Report 2004 12
Customer alliances
A cornerstone of our strategy has
been and continues to be developing
close working relationships with our
customers in all of our businesses. In
our Energy Production Systems busi-
ness, these relationships have taken
the form of alliances, frame agree-
ments and other types of partnerships
on a regional or global basis. We
believe that we have more of these
types of arrangements with key cus-
tomers – such as BP, Shell, Kerr-
McGee, Statoil, Woodside Energy and
Norsk Hydro – than any other compa-
ny in our market sector. We have also
formed collaborative alliances with oil-
field service companies in our Energy
Processing Systems business, air
cargo companies in our Airport
Systems business and citrus proces-
sors in our FoodTech business.
Enfield projects;
CNR’s Baobab proj-
ect; Total’s Rosa proj-
ect; Kerr-McGee’s Red
Hawk and Gunnison proj-
ects; Statoil’s Norne and
Tampen Area projects; and Norsk
Hydro’s Ormen Lange project repre-
sent some of the current projects
where we are solving our customer’s
technical challenges on a day-to-day
basis. At the same time, our alliances
and frame agreements enable us to
invest in technologies that our cus-
tomers need. By working collabora-
tively with our customers, we are able
to assist them in getting the most out
of their oilfields while we strengthen
our own market positions and grow
our businesses.
tomorrow
By partnering
with customers,
we are able to
develop innovative
solutions to the most
significant problems they
face. Our subsea engineers work
alongside our customers’ engineers.
By deeply immersing ourselves in our
customers’ businesses, we are able to
provide them the reliability, practicality
and economy they value. BP’s
Thunder Horse, Atlantis and Greater
Plutonio projects; Shell’s Na Kika,
Coulomb and Llano projects;
Woodside Energy’s Chinguetti and
João Barão (left) and Ricardina
Benjamim, at FMC
Technologies’ Angola facilities,
observe assembly of subsea
equipment for offshore West
Africa projects. In 2004, we
signed subsea system con-
tracts for BP’s Greater
Plutonio, Total’s Rosa and
Woodside Energy’s Chinguetti
projects in this region.
Our Businesses15
energy production systems
energy processing systems
fmc foodtech
airport systems
O u r B u s i n e s s e s
Our Businesses15
energy production systems
energy processing systems
fmc foodtech
airport systems
Energy Production Systems
Subsea systems, used in the offshore
production of crude oil and natural
gas, are the fastest growing part of
Energy Production Systems. Subsea
systems are installed on the seafloor
and are used to control the flow of
crude oil and natural gas from the
reservoir to a host processing facility,
such as a floating production facility,
a fixed platform or an onshore facility.
Our subsea equipment is remotely
controlled by the host processing
facility.
In 2004, we signed agreements to
supply subsea production systems for
BP’s Greater Plutonio, Total’s Rosa
and Woodside Energy’s Chinguetti
projects, offshore West Africa;
Petrobras’ Roncador project, offshore
Brazil; Statoil’s Åsgard-Q, Norne
Satellites and Tampen area projects
in the North Sea; and Kerr-McGee’s
Gunnison, Merganser and
Ticonderoga projects in the Gulf of
Mexico. We continued to supply
equipment and services for a number
of projects for these and other cus-
tomers in all the major offshore
producing areas.
We also signed an extension of our
existing subsea service agreement
with Statoil to provide technical servic-
es and subsea equipment for an addi-
tional two years, with an option for
two more years beyond that. This
agreement comprises technical servic-
es and equipment related to comple-
tion, workover, installation, mainte-
nance and other activities associated
with subsea field development. The
agreement also includes provision
of additional equipment for Statoil-
operated fields that we have
previously supplied.
The design and manufacture of sub-
sea systems require a high degree of
technical expertise and innovation.
These systems are designed to with-
stand exposure to the extreme hydro-
static pressure encountered in deep-
water environments as well as internal
pressures of 15,000 pounds or more
per square inch and temperatures in
excess of 300º F. The foundation of
this business is our technology and
engineering expertise.
The development of our integrated
subsea systems usually includes initial
engineering design studies, subsea
trees, control systems, manifolds,
umbilicals, seabed template systems,
flowline connection and tie-in systems,
installation and workover tools, and
subsea wellheads. In order to provide
these systems and services, we have
highly-developed system and detail
engineering, project management and
global procurement, manufacturing,
assembly and testing capabilities.
Further, we provide service technicians
and tools for equipment installation
and field support for commissioning,
intervention and maintenance of our
subsea developments throughout the
life of an oilfield.
17
Energy Production Systems designs and manufactures systems and services for customers involved in land and offshore,
particularly deepwater, exploration and production of oil and gas. We have production facilities near the world’s principal off-
shore oil-producing basins.
Our Energy Production Systems businesses include subsea systems, floating production systems, surface production equip-
ment and separation systems.
Håkon Sivertsen (foreground) and
Jarle Rimork, technicians in FMC
Technologies’ workshop in
Kongsberg, Norway, check subsea
trees prior to delivery to customers’
North Sea projects.
53%
Energy Production Systems’
revenue comprised approxi-
mately 53 percent of FMC
Technologies’ total revenue
in 2004.
FMC Technologies Inc. Annual Report 2004 16
deeply immersed in ourcustomers’ world.
Energy Production Systems
Energy Production Systems
Subsea systems, used in the offshore
production of crude oil and natural
gas, are the fastest growing part of
Energy Production Systems. Subsea
systems are installed on the seafloor
and are used to control the flow of
crude oil and natural gas from the
reservoir to a host processing facility,
such as a floating production facility,
a fixed platform or an onshore facility.
Our subsea equipment is remotely
controlled by the host processing
facility.
In 2004, we signed agreements to
supply subsea production systems for
BP’s Greater Plutonio, Total’s Rosa
and Woodside Energy’s Chinguetti
projects, offshore West Africa;
Petrobras’ Roncador project, offshore
Brazil; Statoil’s Åsgard-Q, Norne
Satellites and Tampen area projects
in the North Sea; and Kerr-McGee’s
Gunnison, Merganser and
Ticonderoga projects in the Gulf of
Mexico. We continued to supply
equipment and services for a number
of projects for these and other cus-
tomers in all the major offshore
producing areas.
We also signed an extension of our
existing subsea service agreement
with Statoil to provide technical servic-
es and subsea equipment for an addi-
tional two years, with an option for
two more years beyond that. This
agreement comprises technical servic-
es and equipment related to comple-
tion, workover, installation, mainte-
nance and other activities associated
with subsea field development. The
agreement also includes provision
of additional equipment for Statoil-
operated fields that we have
previously supplied.
The design and manufacture of sub-
sea systems require a high degree of
technical expertise and innovation.
These systems are designed to with-
stand exposure to the extreme hydro-
static pressure encountered in deep-
water environments as well as internal
pressures of 15,000 pounds or more
per square inch and temperatures in
excess of 300º F. The foundation of
this business is our technology and
engineering expertise.
The development of our integrated
subsea systems usually includes initial
engineering design studies, subsea
trees, control systems, manifolds,
umbilicals, seabed template systems,
flowline connection and tie-in systems,
installation and workover tools, and
subsea wellheads. In order to provide
these systems and services, we have
highly-developed system and detail
engineering, project management and
global procurement, manufacturing,
assembly and testing capabilities.
Further, we provide service technicians
and tools for equipment installation
and field support for commissioning,
intervention and maintenance of our
subsea developments throughout the
life of an oilfield.
17
Energy Production Systems designs and manufactures systems and services for customers involved in land and offshore,
particularly deepwater, exploration and production of oil and gas. We have production facilities near the world’s principal off-
shore oil-producing basins.
Our Energy Production Systems businesses include subsea systems, floating production systems, surface production equip-
ment and separation systems.
Håkon Sivertsen (foreground) and
Jarle Rimork, technicians in FMC
Technologies’ workshop in
Kongsberg, Norway, check subsea
trees prior to delivery to customers’
North Sea projects.
53%
Energy Production Systems’
revenue comprised approxi-
mately 53 percent of FMC
Technologies’ total revenue
in 2004.
FMC Technologies Inc. Annual Report 2004 16
deeply immersed in ourcustomers’ world.
Energy Production Systems
Energy Production Systems19
In 2003, we also formed a joint ven-
ture company, GTL MicroSystems,
with Accentus plc, a subsidiary of AEA
Technology plc, for the commercial
development of gas-to-liquids (GTL)
technology, specifically addressing the
problem of associated gas production
in remote offshore oil fields. A signifi-
cant portion of the world’s natural gas
exists in small, stranded reserves or is
associated with oil production. These
reserves are difficult to exploit eco-
nomically using current technology.
However, we believe a new technology
will allow commercial extraction of gas
reserves at lower capital costs than
those of traditional, large-scale plants,
and the technology is designed to
enable the plants to be located on
floating production facilities.
With our integrated systems for sub-
sea production, we have pursued
alliances with oil and gas companies
that are actively engaged in the sub-
sea development of crude oil and nat-
ural gas. Development of subsea
fields, particularly in deepwater envi-
ronments, involves substantial capital
investments by our customers. We
believe that our customers have
sought the security of alliances with us
to ensure timely and cost-effective
delivery of subsea and other energy-
related systems that provide an inte-
grated solution to their needs. Our
alliances establish important ongoing
relationships with our customers.
Our subsea engineers work alongside our
customers’ engineers in our plantsand on their rigs.
FMC Technologies Inc. Annual Report 2004 18
We are a global supplier of marine ter-
minals, turret and mooring systems,
riser systems, swivel systems and
control and service buoys for a broad
range of marine and subsea projects.
These products and services are part
of our customers’ overall floating pro-
duction system, which produces,
processes, stores, and offloads crude
oil from offshore fields.
Our floating systems business was
chosen in 2004 to design and supply
a disconnectable turret mooring sys-
tem for Santos’ Mutineer-Exeter proj-
ect, offshore Australia. This business
also made progress with the offshore
oil loading project in Algeria for
Sonatrach-TRC, the Algerian Oil and
Gas Company, although severe
storms in November delayed comple-
tion of the pipeline installation phase of
the project.
In addition to our subsea systems that
control the flow of oil and natural gas
from deepwater locations, we provide
a full range of surface wellheads and
trees for both standard and critical
service applications. Surface wellhead
equipment is used to support the cas-
ing and tubing strings in a well and to
contain the well pressure. Surface
trees are used to control and regulate
the flow from the well. Our surface
products and systems are used world-
wide on both land and offshore plat-
forms and can be used in difficult cli-
matic conditions, such as Arctic cold
or intense heat. We support our cus-
tomers by providing leading engineer-
ing, manufacturing, field installation
support and aftermarket services.
In 2003, we acquired 55 percent
ownership in CDS Engineering with a
commitment to purchase the remain-
ing 45 percent in 2009. CDS
Engineering’s separation technology
modifies conventional separation tech-
nologies by allowing the flow to move
in a spiral, spinning motion. This caus-
es the elements of the flow stream to
separate more efficiently. These sys-
tems are currently capable of operat-
ing on surface systems onshore or off-
shore facilities. We believe this tech-
nology has the potential to advance
our subsea processing capabilities in
the future.
We are encouraged about the
prospects of developing subsea sepa-
ration processing technologies through
our CDS subsidiary. Subsea process-
ing is an emerging technology in the
industry, which we believe offers con-
siderable benefits to the oil and gas
producer, enabling a more rapid and
efficient approach to separation. First,
it can significantly reduce the capital
investment required for floating vessels
or platforms, since the integration of
processing capabilities will not be
required. Also, if separation is per-
formed on the seabed, the hydrostatic
pressure of the fluid going from the
seabed to the surface is reduced,
allowing the well to flow more efficient-
ly, accelerating production and
enabling higher recoveries from the
subsea reservoir.
Marco Polo in the Gulf of Mexico,
Anadarko Petroleum’s first deep-
water development project,
employs one of the world’s deep-
est TLP installations, at approxi-
mately 4,300 feet of water depth.
FMC Technologies supplied sub-
sea trees, production risers, sub-
sea wellhead systems and asso-
ciated equipment for the project.
Energy Production Systems19
In 2003, we also formed a joint ven-
ture company, GTL MicroSystems,
with Accentus plc, a subsidiary of AEA
Technology plc, for the commercial
development of gas-to-liquids (GTL)
technology, specifically addressing the
problem of associated gas production
in remote offshore oil fields. A signifi-
cant portion of the world’s natural gas
exists in small, stranded reserves or is
associated with oil production. These
reserves are difficult to exploit eco-
nomically using current technology.
However, we believe a new technology
will allow commercial extraction of gas
reserves at lower capital costs than
those of traditional, large-scale plants,
and the technology is designed to
enable the plants to be located on
floating production facilities.
With our integrated systems for sub-
sea production, we have pursued
alliances with oil and gas companies
that are actively engaged in the sub-
sea development of crude oil and nat-
ural gas. Development of subsea
fields, particularly in deepwater envi-
ronments, involves substantial capital
investments by our customers. We
believe that our customers have
sought the security of alliances with us
to ensure timely and cost-effective
delivery of subsea and other energy-
related systems that provide an inte-
grated solution to their needs. Our
alliances establish important ongoing
relationships with our customers.
Our subsea engineers work alongside our
customers’ engineers in our plantsand on their rigs.
FMC Technologies Inc. Annual Report 2004 18
We are a global supplier of marine ter-
minals, turret and mooring systems,
riser systems, swivel systems and
control and service buoys for a broad
range of marine and subsea projects.
These products and services are part
of our customers’ overall floating pro-
duction system, which produces,
processes, stores, and offloads crude
oil from offshore fields.
Our floating systems business was
chosen in 2004 to design and supply
a disconnectable turret mooring sys-
tem for Santos’ Mutineer-Exeter proj-
ect, offshore Australia. This business
also made progress with the offshore
oil loading project in Algeria for
Sonatrach-TRC, the Algerian Oil and
Gas Company, although severe
storms in November delayed comple-
tion of the pipeline installation phase of
the project.
In addition to our subsea systems that
control the flow of oil and natural gas
from deepwater locations, we provide
a full range of surface wellheads and
trees for both standard and critical
service applications. Surface wellhead
equipment is used to support the cas-
ing and tubing strings in a well and to
contain the well pressure. Surface
trees are used to control and regulate
the flow from the well. Our surface
products and systems are used world-
wide on both land and offshore plat-
forms and can be used in difficult cli-
matic conditions, such as Arctic cold
or intense heat. We support our cus-
tomers by providing leading engineer-
ing, manufacturing, field installation
support and aftermarket services.
In 2003, we acquired 55 percent
ownership in CDS Engineering with a
commitment to purchase the remain-
ing 45 percent in 2009. CDS
Engineering’s separation technology
modifies conventional separation tech-
nologies by allowing the flow to move
in a spiral, spinning motion. This caus-
es the elements of the flow stream to
separate more efficiently. These sys-
tems are currently capable of operat-
ing on surface systems onshore or off-
shore facilities. We believe this tech-
nology has the potential to advance
our subsea processing capabilities in
the future.
We are encouraged about the
prospects of developing subsea sepa-
ration processing technologies through
our CDS subsidiary. Subsea process-
ing is an emerging technology in the
industry, which we believe offers con-
siderable benefits to the oil and gas
producer, enabling a more rapid and
efficient approach to separation. First,
it can significantly reduce the capital
investment required for floating vessels
or platforms, since the integration of
processing capabilities will not be
required. Also, if separation is per-
formed on the seabed, the hydrostatic
pressure of the fluid going from the
seabed to the surface is reduced,
allowing the well to flow more efficient-
ly, accelerating production and
enabling higher recoveries from the
subsea reservoir.
Marco Polo in the Gulf of Mexico,
Anadarko Petroleum’s first deep-
water development project,
employs one of the world’s deep-
est TLP installations, at approxi-
mately 4,300 feet of water depth.
FMC Technologies supplied sub-
sea trees, production risers, sub-
sea wellhead systems and asso-
ciated equipment for the project.
Energy Production Systems21
Through its relationship withNorsk Hydro,FMC Technologies is supplying subsea systems and relatedservices for the first phase development of the Ormen LangeField in the North Sea. Our subsea production systems con-tract for the first phase, valued at approximately $145 million,includes eight subsea trees and associated structures, mani-folds and production control systems, as well as connection
Ormen Lange – Norsk Hydro develops giant gas field
With gas reserves over 14 trillion cubic feet (close to 400 billioncubic meters) and development costs of $9.5 billion, theOrmen Lange field ranks as the second largest gas field onthe Norwegian Continental Shelf. The Ormen Lange gasreservoir covers a 135 square mile area, more than 6,000feet below the seafloor, approximately 600 miles northwestof Kristiansund, Norway. Water depths in the area varybetween 2,800 and 3,600 feet, making Ormen Lange thedeepest Norwegian offshore development project to date.
systems for flowlines and umbilicals. An additional contractincludes technical services related to installation and startup.The contract also includes an option for Norsk Hydro toorder eight additional subsea trees and associated equip-ment as well as potential further equipment deliveries in thefuture.
Production from Ormen Lange is scheduled to commencein 2007 and should reach its peak by the end of the decade– supplying up to 700 billion cubic feet (20 billion standardcubic meters) of gas per year. Construction work startedimmediately after approval by the Norwegian authorities inApril 2004. The development concept combines a subseaproduction facility with an onshore processing facility atNyhamna on the northwestern coast of Norway.
In addition to water depth, the Ormen Lange developmentfaces a number of other technical challenges. In theStoregga area, where Ormen Lange is located, a major sub-sea slide occurred some 8,000 years ago. As a result, theseafloor is very uneven – with peaks that rise as much as197 feet – and consists of both hard and soft sediments.The Ormen Lange gas field is located at the base of theStoregga slide area, some 3,000 feet below the sea’s sur-face, in an area with strong currents and extreme wave andwind conditions.
The development plan calls for four subsea templates for upto 24 wells. Two 30-inch pipelines will transport gas, con-densate and water from the subsea production facilities, upthe steep Storegga escarpment and through uneven subseaterrain to the onshore gas terminal at Nyhamna. Thepipelines will travel a distance of approximately 75 miles.
Ormen Lange will provide important supplies of natural gasto the United Kingdom and other European markets. NorskHydro expects the field to be a major supplier of gas for thenext 20 to 30 years.
20FMC Technologies Inc. Annual Report 2004
Offshore oil and gas production is forecast togrow from 39 million barrels of oil equivalent per day (BOE/d) in2004 to 55 million BOE/d by 2015, according to a study byDouglas-Westwood, noted energy industry consultants. From pro-viding about 34 percent of total global production in 2004,Douglas-Westwood projects offshore oil will reach 39 percent by2015.
The study also forecasts that the complete costs to explore for,develop and operate offshore oil and gas fields, currently some$100 billion, will total more than $1.4 trillion over the next 10years. During this time, it is estimated that 200 billion barrels of oilequivalent will be produced.
According to the study, an important trend is the move to deepwaters. Around 25 percent of offshore oil is anticipated to comefrom water depths beyond 1,600 feet (about 500 meters) in 2015,compared to 10 percent in 2004. Most significantly, after 2010 alloffshore oil production growth is expected to be from deepwaters, compensating for declining output from shallow waters.
Another major change noted by the study is the shift in regionalactivity. According to the study, offshore oil production began inNorth America in 1938. Since then, growth from all the regionshas continued, most rapidly from Western Europe – mainly theNorth Sea. In 2004, Western Europe was providing 21 percent ofall offshore oil, but is forecast to be providing only 11 percent by2015. The Middle East, due to its larger reserves, and Africa andLatin America, due to their deep waters, are forecast by the studyto contribute the largest shares in 2015, with 21 percent, 19 percent and 18 percent, respectively.
The study projects that, unlike oil, offshore gas output will continueto rise from both shallow and deep waters. In total, a growth of 40 percent is expected by 2015. Douglas-Westwood projects thataround 12 percent will be coming from deepwater, compared to7 percent in 2004. By 2015, offshore gas is expected to provide 34 percent of world demand. A large increase in supply is expect-ed from the Middle East. The study forecasts that offshore gas’share of the energy mix will rise from 33 percent in 2004 to 40 percent in 2015. It anticipates that this trend will continue driving an unprecedented growth in expenditure in gas develop-ments, including pipelines, liquefied natural gas (LNG) plants, gas-to-liquid processing plants, tanker transport and loading andunloading terminals.
Offshore oil and gas industry forecast to spend $1.4 trillion over next 10 years
(Photos left and center) Arild Nymo, of FMC
Technologies, and Carsten Scheby, of Shell, review
systems specifications for the Ormen Lange project
in Kongsberg, Norway. Although he is employed by
Shell, which is the production phase operator for
Ormen Lange, Carsten often wears Norsk Hydro’s
identification while working on the project. (Photo far
right) Per Foss, a technician in Kongsberg, checks
connections on a subsea control module.
2004 20150
10
20
30
40
50
60
0
200
400
600
800
1000
1200
1400
Offshore Oil and Gas Production
2004 – 2015
Production Costs
Millions BOE/d
Billions$
39
55
Energy Production Systems21
Through its relationship withNorsk Hydro,FMC Technologies is supplying subsea systems and relatedservices for the first phase development of the Ormen LangeField in the North Sea. Our subsea production systems con-tract for the first phase, valued at approximately $145 million,includes eight subsea trees and associated structures, mani-folds and production control systems, as well as connection
Ormen Lange – Norsk Hydro develops giant gas field
With gas reserves over 14 trillion cubic feet (close to 400 billioncubic meters) and development costs of $9.5 billion, theOrmen Lange field ranks as the second largest gas field onthe Norwegian Continental Shelf. The Ormen Lange gasreservoir covers a 135 square mile area, more than 6,000feet below the seafloor, approximately 600 miles northwestof Kristiansund, Norway. Water depths in the area varybetween 2,800 and 3,600 feet, making Ormen Lange thedeepest Norwegian offshore development project to date.
systems for flowlines and umbilicals. An additional contractincludes technical services related to installation and startup.The contract also includes an option for Norsk Hydro toorder eight additional subsea trees and associated equip-ment as well as potential further equipment deliveries in thefuture.
Production from Ormen Lange is scheduled to commencein 2007 and should reach its peak by the end of the decade– supplying up to 700 billion cubic feet (20 billion standardcubic meters) of gas per year. Construction work startedimmediately after approval by the Norwegian authorities inApril 2004. The development concept combines a subseaproduction facility with an onshore processing facility atNyhamna on the northwestern coast of Norway.
In addition to water depth, the Ormen Lange developmentfaces a number of other technical challenges. In theStoregga area, where Ormen Lange is located, a major sub-sea slide occurred some 8,000 years ago. As a result, theseafloor is very uneven – with peaks that rise as much as197 feet – and consists of both hard and soft sediments.The Ormen Lange gas field is located at the base of theStoregga slide area, some 3,000 feet below the sea’s sur-face, in an area with strong currents and extreme wave andwind conditions.
The development plan calls for four subsea templates for upto 24 wells. Two 30-inch pipelines will transport gas, con-densate and water from the subsea production facilities, upthe steep Storegga escarpment and through uneven subseaterrain to the onshore gas terminal at Nyhamna. Thepipelines will travel a distance of approximately 75 miles.
Ormen Lange will provide important supplies of natural gasto the United Kingdom and other European markets. NorskHydro expects the field to be a major supplier of gas for thenext 20 to 30 years.
20FMC Technologies Inc. Annual Report 2004
Offshore oil and gas production is forecast togrow from 39 million barrels of oil equivalent per day (BOE/d) in2004 to 55 million BOE/d by 2015, according to a study byDouglas-Westwood, noted energy industry consultants. From pro-viding about 34 percent of total global production in 2004,Douglas-Westwood projects offshore oil will reach 39 percent by2015.
The study also forecasts that the complete costs to explore for,develop and operate offshore oil and gas fields, currently some$100 billion, will total more than $1.4 trillion over the next 10years. During this time, it is estimated that 200 billion barrels of oilequivalent will be produced.
According to the study, an important trend is the move to deepwaters. Around 25 percent of offshore oil is anticipated to comefrom water depths beyond 1,600 feet (about 500 meters) in 2015,compared to 10 percent in 2004. Most significantly, after 2010 alloffshore oil production growth is expected to be from deepwaters, compensating for declining output from shallow waters.
Another major change noted by the study is the shift in regionalactivity. According to the study, offshore oil production began inNorth America in 1938. Since then, growth from all the regionshas continued, most rapidly from Western Europe – mainly theNorth Sea. In 2004, Western Europe was providing 21 percent ofall offshore oil, but is forecast to be providing only 11 percent by2015. The Middle East, due to its larger reserves, and Africa andLatin America, due to their deep waters, are forecast by the studyto contribute the largest shares in 2015, with 21 percent, 19 percent and 18 percent, respectively.
The study projects that, unlike oil, offshore gas output will continueto rise from both shallow and deep waters. In total, a growth of 40 percent is expected by 2015. Douglas-Westwood projects thataround 12 percent will be coming from deepwater, compared to7 percent in 2004. By 2015, offshore gas is expected to provide 34 percent of world demand. A large increase in supply is expect-ed from the Middle East. The study forecasts that offshore gas’share of the energy mix will rise from 33 percent in 2004 to 40 percent in 2015. It anticipates that this trend will continue driving an unprecedented growth in expenditure in gas develop-ments, including pipelines, liquefied natural gas (LNG) plants, gas-to-liquid processing plants, tanker transport and loading andunloading terminals.
Offshore oil and gas industry forecast to spend $1.4 trillion over next 10 years
(Photos left and center) Arild Nymo, of FMC
Technologies, and Carsten Scheby, of Shell, review
systems specifications for the Ormen Lange project
in Kongsberg, Norway. Although he is employed by
Shell, which is the production phase operator for
Ormen Lange, Carsten often wears Norsk Hydro’s
identification while working on the project. (Photo far
right) Per Foss, a technician in Kongsberg, checks
connections on a subsea control module.
2004 20150
10
20
30
40
50
60
0
200
400
600
800
1000
1200
1400
Offshore Oil and Gas Production
2004 – 2015
Production Costs
Millions BOE/d
Billions$
39
55
Energy Production Systems23
BP’s involvement with Angola dates back to the 1970s.During the 1990s, BP made substantial investments inAngola’s offshore oil, and these investments are growing inimportance. BP has interests in six blocks offshore Angolaand is the operator of two. One of those is Block 18, inwhich six fields will be the first development and the firstBP-operated project offshore Angola. The fields, Galio,Cromio, Paladio, Plutonio, Cobalto and Platina, collectivelyknown as Greater Plutonio, are located in water depths of3,900 to 4,900 feet (1,200 to 1,500 meters).
In 2004, Sociedade Nacional de Combustíveis de Angola(Sonangol), Angola’s state-owned oil company, authorizedBP to proceed with the awarding of major contracts for thedevelopment of Greater Plutonio in Block 18, and we werechosen to supply subsea systems and related services for theproject. The value of the project to FMC Technologies isapproximately $382 million in revenue.
FMC Technologies’ scope of supply for the entire GreaterPlutonio project is expected to include 45 subsea trees andassociated structures, manifolds and production control sys-tems, as well as connection systems for flowlines and umbil-icals. We also will supply technical services related to instal-lation and startup. The supply of equipment and serviceswill be supported by our operations in Angola. Deliveries,which began in early 2005, will be completed over a multi-year period. Our supply of subsea systems for the GreaterPlutonio project will involve local content, an expansion ofour Angolan facilities, local employment opportunities and atechnical training program.
Block 18 has an area of approximately 1,930 square miles.The Greater Plutonio development will consist of a singlespread-moored FPSO vessel linked by risers to a network ofsubsea flowlines, manifolds and wells. BP estimates that itsnet production from Angola will rise from 50,000 barrels ofoil per day in 2004 to approximately 250,000 barrels perday by 2007.
Greater Plutonio – BP’s reserves enhanced in Block 18,offshore Angola
Eduardo Dinis and Nascimento Peterson, at FMC
Technologies’ service base in Luanda, Angola, are
involved in preparing subsea systems for BP’s
Greater Plutonio project in Block 18, offshore West
Africa. Our supply of subsea systems for Greater
Plutonio will involve local content, expansion of our
Angolan facilities, local employment opportunities
and a technical training program.
FMC Technologies Inc. Annual Report 2004 22
The Enfield Area Development Project is about25 miles northwest off the North West Cape of Australia, inwater depths ranging from 1,310 to 1,805 feet (400 to 550meters). The Enfield oil field was discovered in 1999, withrecoverable oil reserves in excess of 125 million barrels. Firstoil production from Enfield is forecast by the second half of2006, and Woodside Energy believes oil production atEnfield will be a major contributor to its future growth.
In January 2003, we were chosen by Woodside Energy as apreferred supplier of subsea production systems, and Enfieldwas the first project to be supplied under this agreement. Thiswas the first agreement of its type in the Australian region. Asa preferred supplier to Woodside Energy, we established anoffice in Perth and will undertake our work on subsea struc-tures primarily with local fabricators.
In early 2004, we began executing our agreement withWoodside Energy to supply subsea systems and related servic-es for the Enfield project. The contract value is approximately$65 million. The agreement includes 13 subsea trees, produc-tion controls and associated systems. We also will furnish tech-nical services related to installation and startup.
Enfield – Woodside Energy’s pioneering development offshore Western Australia
Enfield comprises subsea wells with flowlines back to anFPSO. The Enfield FPSO will have a double hull and a stor-age capacity of approximately 900,000 barrels. It will beequipped with a disconnectable mooring and its ownpropulsion system, giving it the ability to avoid tropicalcyclones. Gas-lift wells will be used to produce fluids andwater injection wells will be used to dispose of producedwater, supplemented by the injection of seawater to main-tain reservoir pressure. Excess gas will be reinjected into thereservoir. Crude oil will be stored in the FPSO's tanks andperiodically exported through an offloading hose to tandemmoored off-take tankers. Typical export cargoes will beabout 550,000 barrels.
Production from Enfield is expected to extend over a longperiod, and the facilities have been designed for 20 years ofoperation. The FPSO is intended to remain on station forthe entire design life without needing to dry dock for main-tenance.
Subsea control modules are being prepared for deliv-
ery to Woodside Energy’s Enfield project, offshore
Western Australia. We are providing 13 subsea trees,
production controls and associated systems for
Enfield, which was the first project to be supplied
under our preferred supplier agreement with
Woodside Energy.
Energy Production Systems23
BP’s involvement with Angola dates back to the 1970s.During the 1990s, BP made substantial investments inAngola’s offshore oil, and these investments are growing inimportance. BP has interests in six blocks offshore Angolaand is the operator of two. One of those is Block 18, inwhich six fields will be the first development and the firstBP-operated project offshore Angola. The fields, Galio,Cromio, Paladio, Plutonio, Cobalto and Platina, collectivelyknown as Greater Plutonio, are located in water depths of3,900 to 4,900 feet (1,200 to 1,500 meters).
In 2004, Sociedade Nacional de Combustíveis de Angola(Sonangol), Angola’s state-owned oil company, authorizedBP to proceed with the awarding of major contracts for thedevelopment of Greater Plutonio in Block 18, and we werechosen to supply subsea systems and related services for theproject. The value of the project to FMC Technologies isapproximately $382 million in revenue.
FMC Technologies’ scope of supply for the entire GreaterPlutonio project is expected to include 45 subsea trees andassociated structures, manifolds and production control sys-tems, as well as connection systems for flowlines and umbil-icals. We also will supply technical services related to instal-lation and startup. The supply of equipment and serviceswill be supported by our operations in Angola. Deliveries,which began in early 2005, will be completed over a multi-year period. Our supply of subsea systems for the GreaterPlutonio project will involve local content, an expansion ofour Angolan facilities, local employment opportunities and atechnical training program.
Block 18 has an area of approximately 1,930 square miles.The Greater Plutonio development will consist of a singlespread-moored FPSO vessel linked by risers to a network ofsubsea flowlines, manifolds and wells. BP estimates that itsnet production from Angola will rise from 50,000 barrels ofoil per day in 2004 to approximately 250,000 barrels perday by 2007.
Greater Plutonio – BP’s reserves enhanced in Block 18,offshore Angola
Eduardo Dinis and Nascimento Peterson, at FMC
Technologies’ service base in Luanda, Angola, are
involved in preparing subsea systems for BP’s
Greater Plutonio project in Block 18, offshore West
Africa. Our supply of subsea systems for Greater
Plutonio will involve local content, expansion of our
Angolan facilities, local employment opportunities
and a technical training program.
FMC Technologies Inc. Annual Report 2004 22
The Enfield Area Development Project is about25 miles northwest off the North West Cape of Australia, inwater depths ranging from 1,310 to 1,805 feet (400 to 550meters). The Enfield oil field was discovered in 1999, withrecoverable oil reserves in excess of 125 million barrels. Firstoil production from Enfield is forecast by the second half of2006, and Woodside Energy believes oil production atEnfield will be a major contributor to its future growth.
In January 2003, we were chosen by Woodside Energy as apreferred supplier of subsea production systems, and Enfieldwas the first project to be supplied under this agreement. Thiswas the first agreement of its type in the Australian region. Asa preferred supplier to Woodside Energy, we established anoffice in Perth and will undertake our work on subsea struc-tures primarily with local fabricators.
In early 2004, we began executing our agreement withWoodside Energy to supply subsea systems and related servic-es for the Enfield project. The contract value is approximately$65 million. The agreement includes 13 subsea trees, produc-tion controls and associated systems. We also will furnish tech-nical services related to installation and startup.
Enfield – Woodside Energy’s pioneering development offshore Western Australia
Enfield comprises subsea wells with flowlines back to anFPSO. The Enfield FPSO will have a double hull and a stor-age capacity of approximately 900,000 barrels. It will beequipped with a disconnectable mooring and its ownpropulsion system, giving it the ability to avoid tropicalcyclones. Gas-lift wells will be used to produce fluids andwater injection wells will be used to dispose of producedwater, supplemented by the injection of seawater to main-tain reservoir pressure. Excess gas will be reinjected into thereservoir. Crude oil will be stored in the FPSO's tanks andperiodically exported through an offloading hose to tandemmoored off-take tankers. Typical export cargoes will beabout 550,000 barrels.
Production from Enfield is expected to extend over a longperiod, and the facilities have been designed for 20 years ofoperation. The FPSO is intended to remain on station forthe entire design life without needing to dry dock for main-tenance.
Subsea control modules are being prepared for deliv-
ery to Woodside Energy’s Enfield project, offshore
Western Australia. We are providing 13 subsea trees,
production controls and associated systems for
Enfield, which was the first project to be supplied
under our preferred supplier agreement with
Woodside Energy.
Energy Production Systems25
Kerr-McGee’s Red Hawk field wasdeveloped using new technologies – the world’s first cellSpar and the second permanent use of synthetic mooringsin the Gulf of Mexico. This innovative Spar, which is thethird generation of Spar technology, reduces the reservethreshold required for an economical development in deepwaters.
The Red Hawk project is the deepest application to date(5,342 feet, or approximately 1,629 meters) using FMCTechnologies’ Enhanced Horizontal Tree (EHXT) technology.Red Hawk also is an example of how important strong cus-tomer relations and standardization are to achievingimproved reliability and reduced project cycle time.
Our scope of work for Red Hawk included two EHXTs, ratedto 10,000 psi, associated equipment and materials, and sys-tem integration testing, offshore installation support andtechnical assistance. A number of innovative techniqueswere employed that enabled Kerr-McGee to lower installa-tion costs. Additionally, batch setting of both trees con-tributed to reducing the overall installation costs by requir-ing only one trip with the drilling riser for completion oper-ations.
Also, new jumper fabrication techniques permitted moreequipment to be transported and installed from a singleinstallation vessel. These fabrication methods also saved ves-sel load-out and trip time from the shore base.
A new-generation hydraulic running tool that is smaller andlighter than previous models was used for the first time.When combined with the overall jumper assembly, this toolhelped reduce weight, enabling Kerr-McGee to lift andinstall the jumper assemblies from a smaller, lower-costinstallation vessel.
Another cost saving came from equipment standardizationon other Kerr-McGee projects. This enabled us to preorderlong-lead raw material and reduce the lead times and costs.
Red Hawk – Kerr-McGee provides deepest applicationof Enhanced Horizontal Tree technology
Since the first EHXT was installed, tree installation time hasbeen reduced by one and one-half days per tree, resultingin significant project savings. The EHXT was first used atKerr-McGee’s Nansen and Boomvang fields in the Gulf ofMexico. In addition to Red Hawk, Nansen and Boomvang,FMC Technologies has supplied equipment and services forKerr-McGee’s Neptune and Gunnison projects. Our currentwork with Kerr-McGee includes their Merganser, Nile andTiconderoga projects.
In 2004, FMC Technologies set a world depth record for a
subsea completion with installation of our subsea systems
on the Shell-operated Coulomb project in the Gulf of
Mexico. The water depth for this completion was 7,570 feet,
which was almost 400 feet deeper than the previous record
holder.
FMC Technologies has supplied a number of enhanced hori-
zontal subsea trees for Kerr-McGee’s deepwater projects in
the Gulf of Mexico and developed standardization methods
that save time and money. These projects include Red
Hawk, which employs the world’s first cell spar, Gunnison,
Neptune, Nansen and Boomvang.
FMC Technologies Inc. Annual Report 2004 24
FMC Technologies subsea systems installed in world-record water depth
In 2004, our subsea systems were installed on the Shell-operated Coulomb project, in the world-record water depthfor a subsea completion of 7,570 feet.
The Coulomb project is a two-well subseatieback to the Na Kika host facility, in the Mississippi Canyonarea of the ultra-deepwater Gulf of Mexico. Petrobras is apartner in one of the two wells. FMC Technologies also sup-plied the subsea systems for the Na Kika project, which isco-owned by Shell and BP.
In 1996, Shell and FMC Technologies formed a subseaalliance for the development of projects within Shell’s deep-water portfolio. The alliance was founded on the concept ofengineering standardized products that could be integratedinto a wide variety of systems used to develop multi-wellsubsea projects. Following implementation of the alliance’s
standardized processes, installation times for the tree systemwere reduced by 50 percent, and tree delivery times havebeen reduced by as much as 60 percent. Capital expendi-ture reductions of more than 40 percent have been realized.
The standard system design has proved itself with numerousShell projects in the Gulf of Mexico. The Coulomb projectutilizes the standard vertical subsea tree completion systemdeveloped through the alliance.
“The subsea tree for the Coulomb project was one of 47manufactured last year in our Houston facility, which focus-es on serving the Gulf of Mexico,” said Peter D. Kinnear,Executive Vice President. “This milestone was made possiblethrough our subsea alliance and close working relationshipwith Shell.”
Energy Production Systems25
Kerr-McGee’s Red Hawk field wasdeveloped using new technologies – the world’s first cellSpar and the second permanent use of synthetic mooringsin the Gulf of Mexico. This innovative Spar, which is thethird generation of Spar technology, reduces the reservethreshold required for an economical development in deepwaters.
The Red Hawk project is the deepest application to date(5,342 feet, or approximately 1,629 meters) using FMCTechnologies’ Enhanced Horizontal Tree (EHXT) technology.Red Hawk also is an example of how important strong cus-tomer relations and standardization are to achievingimproved reliability and reduced project cycle time.
Our scope of work for Red Hawk included two EHXTs, ratedto 10,000 psi, associated equipment and materials, and sys-tem integration testing, offshore installation support andtechnical assistance. A number of innovative techniqueswere employed that enabled Kerr-McGee to lower installa-tion costs. Additionally, batch setting of both trees con-tributed to reducing the overall installation costs by requir-ing only one trip with the drilling riser for completion oper-ations.
Also, new jumper fabrication techniques permitted moreequipment to be transported and installed from a singleinstallation vessel. These fabrication methods also saved ves-sel load-out and trip time from the shore base.
A new-generation hydraulic running tool that is smaller andlighter than previous models was used for the first time.When combined with the overall jumper assembly, this toolhelped reduce weight, enabling Kerr-McGee to lift andinstall the jumper assemblies from a smaller, lower-costinstallation vessel.
Another cost saving came from equipment standardizationon other Kerr-McGee projects. This enabled us to preorderlong-lead raw material and reduce the lead times and costs.
Red Hawk – Kerr-McGee provides deepest applicationof Enhanced Horizontal Tree technology
Since the first EHXT was installed, tree installation time hasbeen reduced by one and one-half days per tree, resultingin significant project savings. The EHXT was first used atKerr-McGee’s Nansen and Boomvang fields in the Gulf ofMexico. In addition to Red Hawk, Nansen and Boomvang,FMC Technologies has supplied equipment and services forKerr-McGee’s Neptune and Gunnison projects. Our currentwork with Kerr-McGee includes their Merganser, Nile andTiconderoga projects.
In 2004, FMC Technologies set a world depth record for a
subsea completion with installation of our subsea systems
on the Shell-operated Coulomb project in the Gulf of
Mexico. The water depth for this completion was 7,570 feet,
which was almost 400 feet deeper than the previous record
holder.
FMC Technologies has supplied a number of enhanced hori-
zontal subsea trees for Kerr-McGee’s deepwater projects in
the Gulf of Mexico and developed standardization methods
that save time and money. These projects include Red
Hawk, which employs the world’s first cell spar, Gunnison,
Neptune, Nansen and Boomvang.
FMC Technologies Inc. Annual Report 2004 24
FMC Technologies subsea systems installed in world-record water depth
In 2004, our subsea systems were installed on the Shell-operated Coulomb project, in the world-record water depthfor a subsea completion of 7,570 feet.
The Coulomb project is a two-well subseatieback to the Na Kika host facility, in the Mississippi Canyonarea of the ultra-deepwater Gulf of Mexico. Petrobras is apartner in one of the two wells. FMC Technologies also sup-plied the subsea systems for the Na Kika project, which isco-owned by Shell and BP.
In 1996, Shell and FMC Technologies formed a subseaalliance for the development of projects within Shell’s deep-water portfolio. The alliance was founded on the concept ofengineering standardized products that could be integratedinto a wide variety of systems used to develop multi-wellsubsea projects. Following implementation of the alliance’s
standardized processes, installation times for the tree systemwere reduced by 50 percent, and tree delivery times havebeen reduced by as much as 60 percent. Capital expendi-ture reductions of more than 40 percent have been realized.
The standard system design has proved itself with numerousShell projects in the Gulf of Mexico. The Coulomb projectutilizes the standard vertical subsea tree completion systemdeveloped through the alliance.
“The subsea tree for the Coulomb project was one of 47manufactured last year in our Houston facility, which focus-es on serving the Gulf of Mexico,” said Peter D. Kinnear,Executive Vice President. “This milestone was made possiblethrough our subsea alliance and close working relationshipwith Shell.”
Energy Production Systems27
In Malaysia, we plan to move from our exist-ing, leased manufacturing plant in Pasir Gudang, Johor, to alarger, owned facility nearby in the State of Johor. The newmanufacturing facility will improve our ability to supply sur-face and subsea completion systems for the Malaysian mar-ket and will increase our subsea capacity for the entire AsiaPacific region.
“These capacity expansions will enable FMC Technologies tosupply local content and better serve existing and futurecustomer needs for subsea developments in the growingWest Africa and Asia Pacific offshore regions,” said Peter D.Kinnear, Executive Vice President.
FMC Technologies increases subsea capacity in WestAfrica and Asia Pacific regions
In 2005, we plan to increase our subsea manufacturing and service capabilities by expanding our service base in Angola and constructing a new manufacturing facility in Malaysia.
Expanding our service base in Luanda, Angola,will better enable the provision of local content for WestAfrica subsea projects. The expansion will consist of addi-tional land and facilities, including assembly, fabrication,testing and storage areas.
Subsea processing is poised to grow into an important newbusiness sector, according to a study by energy industryconsultants Douglas-Westwood. “Subsea processing is a true‘gamechanger’ technology, in that by separating and/orpressure boosting well fluids on the seabed, it has thepotential to massively reduce expenditure on offshore plat-forms,” according to the study. “The logical extension isthat in some situations, it may be possible to remove therequirement for the offshore platform completely. Subseaprocessing also presents exciting new opportunities forenhancing production and recoverable reserves.”
In 2004, FMC Technologies was engaged to perform studiesfor Petrobras and Statoil intended to advance subsea separa-tion and processing technologies that we are developing.The two studies, which represent significant milestones forthe advancement of subsea processing, were designed todemonstrate the qualifications of separation and relatedtechnologies for subsea applications.
FMC Technologies has been conducting research and devel-opment activities in subsea processing technology for sever-al years. In 2003, we advanced this effort with the acquisi-tion of controlling interest in CDS Engineering, a leading
provider of gas and liquids separation tech-nology and equipment for both onshore and offshore appli-cations and floating production systems.
Subsea processing is an emerging technology that offersvalue-adding benefits for a range of subsea-developed fields,as retrofit installation in producing fields or as part of theinitial development of new fields or tie-ins. For maturefields, subsea processing typically offers bulk water removaland/or pressure boosting, thereby overcoming constraints intopside processing capacities or declining wellhead pres-sures. This accelerates production and enhances recovery,particularly in cases of great water depth or limitations inthe flowline hydraulic capacities. For new developments,subsea processing provides separation and/or boosting as atool to mitigate flow assurance challenges associated withlong tieback distances and ultra-deep waters. This includesde-watering, which reduces the need for hydrate control,gas/liquid separation, which allows split transport, andpumping/compression, which overcomes the pressure lossesin the flowlines.
Subsea processing represents tomorrow’s game changing technology
FMC Technologies Inc. Annual Report 2004 26
The Roncador Field was dis-covered in 1996 at water depths ranging from 4,900 to6,600 feet (1,500 to 2,000 meters) in the northern part ofthe Campos Basin, approximately 80 miles off the coast ofBrazil. The Roncador Field was a breakthrough in manyrespects, including employment of the world’s first drill piperiser, subsea tree and early production riser rated for 6,600feet.
FMC Technologies and Petrobras set a world depth recordwith Roncador in 1999, and the first phase of this projectwas put on-stream in May 2000. Roncador comprises eightproduction and three injection wells producing to an FPSO.In 2006, the second phase of the project’s first module willstart operating, bringing the total to 20 production and 10injection wells. These wells will be connected to a new semi-submersible platform with the capacity to produce 180,000barrels of oil per day. This unit will be one of the largest inthe world, with a total displacement of 80,000 metric tons.Feasibility studies are being conducted for three additionalRoncador modules.
Since our first subsea tree was supplied for Roncador, wehave provided substantial support for the project. Our scopeof work for Roncador has included vertical and horizontalsubsea trees, manifolds, early production and drill pipe ris-ers, subsea control modules and associated equipment andservices.
In 2004, FMC Technologies received an order fromPetrobras to supply additional subsea production equipmentfor Roncador, which will generate approximately $36 mil-lion in revenue. The order includes manifolds, productioncontrols and associated equipment.
Through its FMC CBV Subsea business unit, FMCTechnologies has supplied 227 subsea trees to the Brazilianoil industry since 1961. With facilities in Rio de Janeiro andMacaé, FMC Technologies’ capabilities in Brazil include localengineering, project management, manufacturing, integra-tion testing, installation and customer support.
Roncador – Petrobras’ record-setting developmentprepares for second phase production
FMC Technologies has been involved in Petrobras’
Roncador project since 1998, setting a subsea completion
depth record in 1999. Our scope of supply for Roncador is
broad and substantial, and in 2004 we received an order for
additional equipment, including manifolds such as the one in
the photo below.
Energy Production Systems27
In Malaysia, we plan to move from our exist-ing, leased manufacturing plant in Pasir Gudang, Johor, to alarger, owned facility nearby in the State of Johor. The newmanufacturing facility will improve our ability to supply sur-face and subsea completion systems for the Malaysian mar-ket and will increase our subsea capacity for the entire AsiaPacific region.
“These capacity expansions will enable FMC Technologies tosupply local content and better serve existing and futurecustomer needs for subsea developments in the growingWest Africa and Asia Pacific offshore regions,” said Peter D.Kinnear, Executive Vice President.
FMC Technologies increases subsea capacity in WestAfrica and Asia Pacific regions
In 2005, we plan to increase our subsea manufacturing and service capabilities by expanding our service base in Angola and constructing a new manufacturing facility in Malaysia.
Expanding our service base in Luanda, Angola,will better enable the provision of local content for WestAfrica subsea projects. The expansion will consist of addi-tional land and facilities, including assembly, fabrication,testing and storage areas.
Subsea processing is poised to grow into an important newbusiness sector, according to a study by energy industryconsultants Douglas-Westwood. “Subsea processing is a true‘gamechanger’ technology, in that by separating and/orpressure boosting well fluids on the seabed, it has thepotential to massively reduce expenditure on offshore plat-forms,” according to the study. “The logical extension isthat in some situations, it may be possible to remove therequirement for the offshore platform completely. Subseaprocessing also presents exciting new opportunities forenhancing production and recoverable reserves.”
In 2004, FMC Technologies was engaged to perform studiesfor Petrobras and Statoil intended to advance subsea separa-tion and processing technologies that we are developing.The two studies, which represent significant milestones forthe advancement of subsea processing, were designed todemonstrate the qualifications of separation and relatedtechnologies for subsea applications.
FMC Technologies has been conducting research and devel-opment activities in subsea processing technology for sever-al years. In 2003, we advanced this effort with the acquisi-tion of controlling interest in CDS Engineering, a leading
provider of gas and liquids separation tech-nology and equipment for both onshore and offshore appli-cations and floating production systems.
Subsea processing is an emerging technology that offersvalue-adding benefits for a range of subsea-developed fields,as retrofit installation in producing fields or as part of theinitial development of new fields or tie-ins. For maturefields, subsea processing typically offers bulk water removaland/or pressure boosting, thereby overcoming constraints intopside processing capacities or declining wellhead pres-sures. This accelerates production and enhances recovery,particularly in cases of great water depth or limitations inthe flowline hydraulic capacities. For new developments,subsea processing provides separation and/or boosting as atool to mitigate flow assurance challenges associated withlong tieback distances and ultra-deep waters. This includesde-watering, which reduces the need for hydrate control,gas/liquid separation, which allows split transport, andpumping/compression, which overcomes the pressure lossesin the flowlines.
Subsea processing represents tomorrow’s game changing technology
FMC Technologies Inc. Annual Report 2004 26
The Roncador Field was dis-covered in 1996 at water depths ranging from 4,900 to6,600 feet (1,500 to 2,000 meters) in the northern part ofthe Campos Basin, approximately 80 miles off the coast ofBrazil. The Roncador Field was a breakthrough in manyrespects, including employment of the world’s first drill piperiser, subsea tree and early production riser rated for 6,600feet.
FMC Technologies and Petrobras set a world depth recordwith Roncador in 1999, and the first phase of this projectwas put on-stream in May 2000. Roncador comprises eightproduction and three injection wells producing to an FPSO.In 2006, the second phase of the project’s first module willstart operating, bringing the total to 20 production and 10injection wells. These wells will be connected to a new semi-submersible platform with the capacity to produce 180,000barrels of oil per day. This unit will be one of the largest inthe world, with a total displacement of 80,000 metric tons.Feasibility studies are being conducted for three additionalRoncador modules.
Since our first subsea tree was supplied for Roncador, wehave provided substantial support for the project. Our scopeof work for Roncador has included vertical and horizontalsubsea trees, manifolds, early production and drill pipe ris-ers, subsea control modules and associated equipment andservices.
In 2004, FMC Technologies received an order fromPetrobras to supply additional subsea production equipmentfor Roncador, which will generate approximately $36 mil-lion in revenue. The order includes manifolds, productioncontrols and associated equipment.
Through its FMC CBV Subsea business unit, FMCTechnologies has supplied 227 subsea trees to the Brazilianoil industry since 1961. With facilities in Rio de Janeiro andMacaé, FMC Technologies’ capabilities in Brazil include localengineering, project management, manufacturing, integra-tion testing, installation and customer support.
Roncador – Petrobras’ record-setting developmentprepares for second phase production
FMC Technologies has been involved in Petrobras’
Roncador project since 1998, setting a subsea completion
depth record in 1999. Our scope of supply for Roncador is
broad and substantial, and in 2004 we received an order for
additional equipment, including manifolds such as the one in
the photo below.
Energy Processing Systems29
Our WECO®/Chiksan® swivels, fit-
tings and valves are recognized indus-
try leaders. Our products are used in
well construction and stimulation activ-
ities by major oilfield service compa-
nies, such as Schlumberger, BJ
Services, Halliburton and Weatherford.
Other products include pump and
manifold equipment.
We provide flowline products for use in
equipment that pumps corrosive/ero-
sive fracturing fluid into a well during
the well servicing process. Flowline
revenues typically rise and fall with
fluctuations in the rig count throughout
the world. Our reciprocating pump
product line includes duplex, triplex
and quintuplex pumps utilized in a
variety of applications. We also supply
high-pressure compact production
manifolds for the offshore oil and gas
industry.
Our measurement solutions business
provides systems for use in custody
transfer of crude oil, natural gas and
refined products. We combine
advanced measurement technology
with state-of-the-art electronics and
supervisory control systems to pro-
duce equipment used for verifying
ownership and determining revenue or
tax obligations. In addition, we provide
multiphase meters which replace tradi-
tional separation and measurement
technologies for reservoir manage-
ment applications. In 2004, we
received an order for non-radioactive
source, multiphase flowmeters that
deliver accurate, continuous measure-
ment for BP’s Holstein platform in the
deepwater Gulf of Mexico.
We provide land and marine-based
fluid loading and transfer systems,
primarily to the oil and gas industry,
and are the only supplier with single-
source capabilities and experience.
Our systems are capable of loading
and offloading marine vessels trans-
porting a wide range of fluids, such as
LNG, crude oil and refined products.
While these systems are typically
constructed on a fixed jetty, we also
supply advanced loading systems that
can be mounted on a vessel to facili-
tate ship-to-ship and/or tandem load-
ing and offloading operations. In 2004,
we provided 14 marine loading arms
for LNG applications, including four
that were specially winterized for
service in the Norwegian North Sea.
We also supplied LNG loading arms
for facilities in the United Kingdom,
South Korea and Nigeria.
We provide blending and transfer
systems for the petroleum industry
and material handling systems, includ-
ing those used in bulk conveying, for
the power industry. Our process engi-
neering, mechanical design and
project management expertise enable
us to execute projects on a turnkey
basis. In 2004, our material handling
business worked closely with Bechtel
Power to provide a fuel handling
system for a major coal-fired power
plant in Arizona.
Energy Processing Systems designs, manufactures and supplies technologically advanced, high-pressure valves and fittings for oilfield service customers as well as liquid and gas measurement equipment and transportation equipment and systems to customers involved in the production, transportation and processing of crude oil, natural gas and petroleum-based refined products.
Our Energy Processing Systems businesses include fluid control, measurement solutions, loading systems, and blending
and transfer systems.
18%
Energy Processing Systems’
revenue constituted approx-
imately 18 percent of FMC
Technologies’ total revenue
in 2004.
Ron Tiner (left) and Eric Ziegler, of
FMC Technologies, discuss an oilfield
fracturing project with Chuck
Shoemake, Fracturing Supervisor for
Schlumberger’s Bryan, Texas, dis-
trict. Hydraulic fracturing is performed
in reservoirs with low permeability in
order to stimulate production.
Schlumberger employs our fluid con-
trol equipment, including swivel joints
and valves, on their stimulation mani-
fold trailer (foreground) and pump
trucks (background).
FMC Technologies Inc. Annual Report 2004 28
deeply immersed in ourcustomers’ world.
Energy Processing Systems
Energy Processing Systems29
Our WECO®/Chiksan® swivels, fit-
tings and valves are recognized indus-
try leaders. Our products are used in
well construction and stimulation activ-
ities by major oilfield service compa-
nies, such as Schlumberger, BJ
Services, Halliburton and Weatherford.
Other products include pump and
manifold equipment.
We provide flowline products for use in
equipment that pumps corrosive/ero-
sive fracturing fluid into a well during
the well servicing process. Flowline
revenues typically rise and fall with
fluctuations in the rig count throughout
the world. Our reciprocating pump
product line includes duplex, triplex
and quintuplex pumps utilized in a
variety of applications. We also supply
high-pressure compact production
manifolds for the offshore oil and gas
industry.
Our measurement solutions business
provides systems for use in custody
transfer of crude oil, natural gas and
refined products. We combine
advanced measurement technology
with state-of-the-art electronics and
supervisory control systems to pro-
duce equipment used for verifying
ownership and determining revenue or
tax obligations. In addition, we provide
multiphase meters which replace tradi-
tional separation and measurement
technologies for reservoir manage-
ment applications. In 2004, we
received an order for non-radioactive
source, multiphase flowmeters that
deliver accurate, continuous measure-
ment for BP’s Holstein platform in the
deepwater Gulf of Mexico.
We provide land and marine-based
fluid loading and transfer systems,
primarily to the oil and gas industry,
and are the only supplier with single-
source capabilities and experience.
Our systems are capable of loading
and offloading marine vessels trans-
porting a wide range of fluids, such as
LNG, crude oil and refined products.
While these systems are typically
constructed on a fixed jetty, we also
supply advanced loading systems that
can be mounted on a vessel to facili-
tate ship-to-ship and/or tandem load-
ing and offloading operations. In 2004,
we provided 14 marine loading arms
for LNG applications, including four
that were specially winterized for
service in the Norwegian North Sea.
We also supplied LNG loading arms
for facilities in the United Kingdom,
South Korea and Nigeria.
We provide blending and transfer
systems for the petroleum industry
and material handling systems, includ-
ing those used in bulk conveying, for
the power industry. Our process engi-
neering, mechanical design and
project management expertise enable
us to execute projects on a turnkey
basis. In 2004, our material handling
business worked closely with Bechtel
Power to provide a fuel handling
system for a major coal-fired power
plant in Arizona.
Energy Processing Systems designs, manufactures and supplies technologically advanced, high-pressure valves and fittings for oilfield service customers as well as liquid and gas measurement equipment and transportation equipment and systems to customers involved in the production, transportation and processing of crude oil, natural gas and petroleum-based refined products.
Our Energy Processing Systems businesses include fluid control, measurement solutions, loading systems, and blending
and transfer systems.
18%
Energy Processing Systems’
revenue constituted approx-
imately 18 percent of FMC
Technologies’ total revenue
in 2004.
Ron Tiner (left) and Eric Ziegler, of
FMC Technologies, discuss an oilfield
fracturing project with Chuck
Shoemake, Fracturing Supervisor for
Schlumberger’s Bryan, Texas, dis-
trict. Hydraulic fracturing is performed
in reservoirs with low permeability in
order to stimulate production.
Schlumberger employs our fluid con-
trol equipment, including swivel joints
and valves, on their stimulation mani-
fold trailer (foreground) and pump
trucks (background).
FMC Technologies Inc. Annual Report 2004 28
deeply immersed in ourcustomers’ world.
Energy Processing Systems
FoodTech31
FoodTech has worldwide operationsand equipment in service in more than100 countries and maintains principalproduction facilities in Belgium, Brazil,Italy, Sweden and the United States.Our food equipment business wasfounded on innovation, and thisremains the business’ lifeblood. During2004, a range of new products wasintroduced.
Demand for our sterilization productswas strong globally in 2004, particular-ly in the Americas. We added waterimmersion technology to our automat-ed batch retort system so customerscan use the same retort for multiplecooking processes. Also, Hormelbecame the first U.S. food companyto convert the packaging of its chilifrom cans to paper-based, retortablecartons. FoodTech developed thetechnology to sterilize these innovativecontainers in our batch retort systems.As carton containers grow in populari-ty, we are well positioned to supply thesystems required for processing.
Our recently introduced TwinTec™“two-in-one” filling/closing technologyset an industry standard in hygienicdesign, flexibility, uptime, spacerequirements and operator safety.TwinTec™ is well positioned to meetand exceed customer requirements inthe growing canning industries ofAfrica, the Middle East, Asia Pacificand South America.
Our citrus processing equipment busi-ness maintained a leading positionworldwide and gained internationalmarket share with its fresh producecoatings and labeling products. In2004, we developed a new citrus juiceextractor designed to further increaseour yield advantage. In Spain, we aresubstantially expanding not-from-con-centrate production and storagecapacity utilizing our proprietary juiceextraction and FranRica™ aseptictechnologies.
Launched in early 2004, the DSIAccura™ Portioning System advancesthe industry’s most proven, accurateand reliable waterjet portioning system
FoodTech is a market-leading supplier of mission-critical industrial food processing equipment and handling systems and services to the global food and beverage processing industry.
We develop, manufacture and service food processing and handling systems primarily for production of citrus juices, frozenfoods and shelf-stable foods as well as convenience foods. We focus on being an indispensable partner in supporting our customers’ success.
19%
FoodTech’s revenue in 2004
represented approximately
19 percent of FMC
Technologies’ total revenue.
for poultry and meat products. Wealso launched SuperShape™ soft-ware, which enables portion controlboth by weight and shape and helpsmaximize yield. Demand for theAccura™ system in 2004 wasstrongest in North America, driven bythe development of several new quick-service restaurant chicken menuitems. In 2004, we began offering thisnew technology on a lease basis,helping our customers achieve maxi-mum operating efficiencies by provid-ing not only the system but also thesoftware, continual upgrades, training,routine service support and spareparts.
Also, 2004 was a breakthrough yearfor our LINK™ computer-based con-trols and technology system. Severalof our product lines were manufac-tured with this system, including all M-series freezers installed in NorthAmerica as well as GCO and JSOovens installed globally. The LINK™control system was further developedto cover a wide range of equipment.
Our freezing equipment businessmaintains its market leading position,and demand is strong in all geograph-ic regions. Since the introduction in2001 of the new GYRoCOMPACT®
self-stacking M-series freezer productline, we have sold well over 100 unitsin different configurations for applica-tions such as poultry, red meat andready-meal/pizza. In North America,our customers have been highlyresponsive to the newly introduced M-series steel enclosures for betterhygiene and increased food safety.
Karsten Landgren, an assembler at
FMC Technologies’ facilities in
Helsingborg, Sweden, works on a
GYRoCOMPACT® M-series self-
stacking spiral freezer. More than
200 improvements incorporated
into the freezer’s design over the
past two years have enhanced its
performance, hygiene and overall
operating economy.
your partner in solutions,safety and service.
FMC Technologies Inc. Annual Report 2004 30
FoodTech
FoodTech31
FoodTech has worldwide operationsand equipment in service in more than100 countries and maintains principalproduction facilities in Belgium, Brazil,Italy, Sweden and the United States.Our food equipment business wasfounded on innovation, and thisremains the business’ lifeblood. During2004, a range of new products wasintroduced.
Demand for our sterilization productswas strong globally in 2004, particular-ly in the Americas. We added waterimmersion technology to our automat-ed batch retort system so customerscan use the same retort for multiplecooking processes. Also, Hormelbecame the first U.S. food companyto convert the packaging of its chilifrom cans to paper-based, retortablecartons. FoodTech developed thetechnology to sterilize these innovativecontainers in our batch retort systems.As carton containers grow in populari-ty, we are well positioned to supply thesystems required for processing.
Our recently introduced TwinTec™“two-in-one” filling/closing technologyset an industry standard in hygienicdesign, flexibility, uptime, spacerequirements and operator safety.TwinTec™ is well positioned to meetand exceed customer requirements inthe growing canning industries ofAfrica, the Middle East, Asia Pacificand South America.
Our citrus processing equipment busi-ness maintained a leading positionworldwide and gained internationalmarket share with its fresh producecoatings and labeling products. In2004, we developed a new citrus juiceextractor designed to further increaseour yield advantage. In Spain, we aresubstantially expanding not-from-con-centrate production and storagecapacity utilizing our proprietary juiceextraction and FranRica™ aseptictechnologies.
Launched in early 2004, the DSIAccura™ Portioning System advancesthe industry’s most proven, accurateand reliable waterjet portioning system
FoodTech is a market-leading supplier of mission-critical industrial food processing equipment and handling systems and services to the global food and beverage processing industry.
We develop, manufacture and service food processing and handling systems primarily for production of citrus juices, frozenfoods and shelf-stable foods as well as convenience foods. We focus on being an indispensable partner in supporting our customers’ success.
19%
FoodTech’s revenue in 2004
represented approximately
19 percent of FMC
Technologies’ total revenue.
for poultry and meat products. Wealso launched SuperShape™ soft-ware, which enables portion controlboth by weight and shape and helpsmaximize yield. Demand for theAccura™ system in 2004 wasstrongest in North America, driven bythe development of several new quick-service restaurant chicken menuitems. In 2004, we began offering thisnew technology on a lease basis,helping our customers achieve maxi-mum operating efficiencies by provid-ing not only the system but also thesoftware, continual upgrades, training,routine service support and spareparts.
Also, 2004 was a breakthrough yearfor our LINK™ computer-based con-trols and technology system. Severalof our product lines were manufac-tured with this system, including all M-series freezers installed in NorthAmerica as well as GCO and JSOovens installed globally. The LINK™control system was further developedto cover a wide range of equipment.
Our freezing equipment businessmaintains its market leading position,and demand is strong in all geograph-ic regions. Since the introduction in2001 of the new GYRoCOMPACT®
self-stacking M-series freezer productline, we have sold well over 100 unitsin different configurations for applica-tions such as poultry, red meat andready-meal/pizza. In North America,our customers have been highlyresponsive to the newly introduced M-series steel enclosures for betterhygiene and increased food safety.
Karsten Landgren, an assembler at
FMC Technologies’ facilities in
Helsingborg, Sweden, works on a
GYRoCOMPACT® M-series self-
stacking spiral freezer. More than
200 improvements incorporated
into the freezer’s design over the
past two years have enhanced its
performance, hygiene and overall
operating economy.
your partner in solutions,safety and service.
FMC Technologies Inc. Annual Report 2004 30
FoodTech
Airport Systems33
Our aviation-related products are in
operation in more than 70 countries
around the world. These products are
sold and marketed through our sales
force of technically oriented employ-
ees, as well as through independent
distributors and sales representatives.
Our Jetway® passenger boarding
bridges provide airline passengers
access from the aircraft to the termi-
nal. In addition to passenger boarding
bridges, we have also developed and
supply an array of auxiliary boarding
bridge equipment, including precondi-
tioned air, potable water and power
conversion systems.
We also supply cargo loaders to com-
mercial airlines, air freight service
providers and the U.S. Air Force.
Our loaders service wide-body jet
aircraft and can be configured to lift up
to 30 tons.
We service the rapidly growing nar-
row-body aircraft market with the
RampSnake® automated baggage
loader, which was introduced in 2004.
The unique and patented design of
this new belt loader enables the belt
conveyor to be extended inside the
cargo area of the plane, reducing
the amount of manual lifting and
increasing the speed over traditional
methods.
Since 2000, we have been supplying
the U.S. Air Force with a cargo loader,
known as the Halvorsen loader, which
is designed specifically for military
applications. U.S. government pro-
curement funding authorization deter-
mines the quantity of Halvorsen load-
ers ordered each year. We are actively
pursuing the expansion of the market
for Halvorsen loaders beyond the U.S.
Air Force by marketing this product to
international customers.
We supply other types of ground
support equipment, such as deicers
and push-back tractors, and airport
services, which offer one-source
control and operational simplicity for
airport facility and ground support
equipment maintenance. We also
provide automated guided vehicles
used in a variety of industries.
10%
Airport Systems’ revenue
constituted approximately
10 percent of FMC
Technologies’ total revenue
in 2004.
Airport Systems is a global supplier of passenger boarding bridges, cargo loaders and other ground support products
and services.
We design, manufacture and service technologically advanced equipment and systems primarily for commercial airlines,
airfreight transporters, ground handling companies, airports and the U.S. Air Force.
In addition to supplying market-
leading passenger boarding bridges
and ground support equipment, FMC
Technologies also provides value-
added technical services for airline
and airport customers. In 2004, we
obtained new airport service projects
in Dallas and Los Angeles.
FMC Technologies Inc. Annual Report 2004 32
Airport Systemsbelow the wing,
above the crowd.
Airport Systems33
Our aviation-related products are in
operation in more than 70 countries
around the world. These products are
sold and marketed through our sales
force of technically oriented employ-
ees, as well as through independent
distributors and sales representatives.
Our Jetway® passenger boarding
bridges provide airline passengers
access from the aircraft to the termi-
nal. In addition to passenger boarding
bridges, we have also developed and
supply an array of auxiliary boarding
bridge equipment, including precondi-
tioned air, potable water and power
conversion systems.
We also supply cargo loaders to com-
mercial airlines, air freight service
providers and the U.S. Air Force.
Our loaders service wide-body jet
aircraft and can be configured to lift up
to 30 tons.
We service the rapidly growing nar-
row-body aircraft market with the
RampSnake® automated baggage
loader, which was introduced in 2004.
The unique and patented design of
this new belt loader enables the belt
conveyor to be extended inside the
cargo area of the plane, reducing
the amount of manual lifting and
increasing the speed over traditional
methods.
Since 2000, we have been supplying
the U.S. Air Force with a cargo loader,
known as the Halvorsen loader, which
is designed specifically for military
applications. U.S. government pro-
curement funding authorization deter-
mines the quantity of Halvorsen load-
ers ordered each year. We are actively
pursuing the expansion of the market
for Halvorsen loaders beyond the U.S.
Air Force by marketing this product to
international customers.
We supply other types of ground
support equipment, such as deicers
and push-back tractors, and airport
services, which offer one-source
control and operational simplicity for
airport facility and ground support
equipment maintenance. We also
provide automated guided vehicles
used in a variety of industries.
10%
Airport Systems’ revenue
constituted approximately
10 percent of FMC
Technologies’ total revenue
in 2004.
Airport Systems is a global supplier of passenger boarding bridges, cargo loaders and other ground support products
and services.
We design, manufacture and service technologically advanced equipment and systems primarily for commercial airlines,
airfreight transporters, ground handling companies, airports and the U.S. Air Force.
In addition to supplying market-
leading passenger boarding bridges
and ground support equipment, FMC
Technologies also provides value-
added technical services for airline
and airport customers. In 2004, we
obtained new airport service projects
in Dallas and Los Angeles.
FMC Technologies Inc. Annual Report 2004 32
Airport Systemsbelow the wing,
above the crowd.
Strategic Outlook35FMC Technologies Inc. Annual Report 2004 34
Subsea Systems Surface & Platform Wel lhead Equipment Gas & Liquids Separat ion Systems Turret Mooring Systems & Transfer Buoys
Energy Production Systems focuses on providing excellent, reliable, cost-effective tech-nology with outstanding execution, delivery and safety. We have the intellectual capital,experience base and breadth of technologies and products that enable us to design aunique solution for project requirements while incorporating standardized components tocontain costs. We derive competitive strength from our close working relationships withcustomers and our ability to blend the project management, engineering, manufacturingand installation elements. We have established production facilities located near themajor offshore producing basins. Our deepwater expertise, experience and innovativetechnology help us maintain a leadership position in subsea.
Order activity was high for offshore WestAfrica in 2004, and we expect continuingstrong activity in this area in 2005, aswell as in the North Sea, offshore Brazil,offshore Australia and the Gulf ofMexico. Our greatest growth areas forfuture subsea projects are offshore WestAfrica and the Asia Pacific region. We
• Maintain market leadership position insubsea systems
• Strengthen global position in surfacewellhead
• Continue to execute projects onschedule and within cost
• Reduce costs, particularly for rawmaterials, through global sourcing
In comparison to the competitors in most of our businesses, Energy Processing Systemshas greater scale and reach, financial resources, product reputation and technologicalinnovation. Our global scale and product portfolio enable us to leverage across multipleproduct lines to execute large scope projects. We also have a multi-functional organiza-tion that provides the various activities necessary to compete effectively in our markets –including procurement, engineering and operations.
A strengthening economy should spurinfrastructure expansion and replace-ment, thereby creating opportunities.Growing demand for LNG is expected tocreate worldwide opportunities for load-ing systems. As gas related activityincreases, opportunities are expandingfor metering systems. Additionally, grow-ing electricity demand should lead tomore power generation from coal-fired
• Maintain market leadership position in all key products
• Continued focus on execution, qualityand cost management
• Invest in new technologies for thefuture
• Develop and maintain close relation-ships with all customers in the supplychain
Technology is very important to our FoodTech business. We provide a differentiated solu-tion to customers, based on technical capability and service. We believe that our solu-tions are the most reliable, highest quality and best in class for most of our product lines.We provide sophisticated, robust solutions for our customers’ challenges, utilizing ourproprietary technology and process know-how.
As the economy continues to improve,market opportunities should expand inthis business. The greatest opportunitiesfor growth are in Latin America, Asia andRussia. We expect continuing concerns
• Be our customers’ most valued supplier, so they call us first to providesolutions for their challenges
• Use technology advantages to providecustomers with higher yields, morethroughput, lower costs and assis-tance with food safety issues
We believe that Airport Systems provides the highest quality, most reliable and safestground support equipment and passenger boarding bridges in the world. Our knowledgebase extends into airport planning, apron layout and gate operation, computerized con-trols and airport management systems. Airport Systems is a global leader in providingproducts and services that significantly advance the operational efficiency of airports, air-lines and air cargo companies, as well as the efficient and reliable cargo handling needsof the military.
In the near term, we believe that ourbest market opportunities in this seg-ment will be in improving internationalmarket share for our traditional productsand supplying increased quantities ofmilitary cargo handling equipment.
• Further expand our business basewith ground handling and airfreighttransport companies as well as airportauthorities worldwide
• Continue to execute the Halvorsenloader program for the U.S. Air Forcewhile exploring opportunities forexpanding our participation in militarymarkets
Energy Product ion Systems
Energy Processing Systems
FMC FoodTech
C o m p e t i t i v e S t r e n g t h s M a r k e t O p p o r t u n i t i e s S t r a t e g i e s f o r 2 0 0 5
Airport Systems
also believe that opportunities areimproving for subsea processing. Weexpect that surface market opportunitieswill continue to be strong in the UnitedStates, Europe, the Middle East and theAsia Pacific region.
facilities, benefiting material handlingsystems. Increases in rig activity andexploration and production spendingshould provide opportunities for fluidcontrol. We expect the most prominentnew geographic market opportunities tobe in China, Eastern Europe, Russia,Kazakhstan and Mexico, subject to theirability to support, upgrade or advanceinfrastructure.
about food safety to expand marketopportunities for our products that helpfood processors with this importantissue.
We anticipate expanding opportunities to serve narrow-body aircraft with ourRampSnake® baggage handling prod-uct line. Asia and Russia are our mostsignificant geographic growth marketopportunities.
• Add Singapore to worldwide SAP network
• Further develop innovative technolo-gies in subsea, surface and subseaprocessing
• Continue to seek opportunities toleverage our product portfolio toachieve synergies among our businesses
• Build on new market initiatives indeveloping countries
• Leverage our large installed base byproviding extensive aftermarket services
• Find innovative ways to reduce product costs on a continuing basis
• Continue to drive down costs
• Grow our service business by providing technical maintenance and support services directly to airportsand airlines
• Leverage established relationshipswith commercial airline and airportcustomers to market ourRampSnake® product offering
Fluid Control Equipment, including Flowl ine Products & Manifold Systems Loading Systems Meter ing Systems Mater ia l Handl ing & Bulk Conveying Systems Blending & Transfer Systems
Freezing, Chi l l ing & Proof ing Systems Coat ing & Cooking Equipment Frying & Fi l t rat ion Equipment Waterjet Port ioning Systems Potato Processing Systems Food Handl ing Systems Inspect ion Detect ion Systems (Color Sorters)
Commercial & Mi l i tary Cargo Loaders Deicers Push-back Tractors Passenger Boarding Br idges Automated Guided Vehicles A irport Services
Citrus Processing Systems Food Processing Systems (Ster i l izat ion & Pasteur izat ion) Asept ic Technology Process Control & Automation Fresh Produce Protect ive Coat ing & Label ing Systems
StrategicO u t l o o k
Strategic Outlook35FMC Technologies Inc. Annual Report 2004 34
Subsea Systems Surface & Platform Wel lhead Equipment Gas & Liquids Separat ion Systems Turret Mooring Systems & Transfer Buoys
Energy Production Systems focuses on providing excellent, reliable, cost-effective tech-nology with outstanding execution, delivery and safety. We have the intellectual capital,experience base and breadth of technologies and products that enable us to design aunique solution for project requirements while incorporating standardized components tocontain costs. We derive competitive strength from our close working relationships withcustomers and our ability to blend the project management, engineering, manufacturingand installation elements. We have established production facilities located near themajor offshore producing basins. Our deepwater expertise, experience and innovativetechnology help us maintain a leadership position in subsea.
Order activity was high for offshore WestAfrica in 2004, and we expect continuingstrong activity in this area in 2005, aswell as in the North Sea, offshore Brazil,offshore Australia and the Gulf ofMexico. Our greatest growth areas forfuture subsea projects are offshore WestAfrica and the Asia Pacific region. We
• Maintain market leadership position insubsea systems
• Strengthen global position in surfacewellhead
• Continue to execute projects onschedule and within cost
• Reduce costs, particularly for rawmaterials, through global sourcing
In comparison to the competitors in most of our businesses, Energy Processing Systemshas greater scale and reach, financial resources, product reputation and technologicalinnovation. Our global scale and product portfolio enable us to leverage across multipleproduct lines to execute large scope projects. We also have a multi-functional organiza-tion that provides the various activities necessary to compete effectively in our markets –including procurement, engineering and operations.
A strengthening economy should spurinfrastructure expansion and replace-ment, thereby creating opportunities.Growing demand for LNG is expected tocreate worldwide opportunities for load-ing systems. As gas related activityincreases, opportunities are expandingfor metering systems. Additionally, grow-ing electricity demand should lead tomore power generation from coal-fired
• Maintain market leadership position in all key products
• Continued focus on execution, qualityand cost management
• Invest in new technologies for thefuture
• Develop and maintain close relation-ships with all customers in the supplychain
Technology is very important to our FoodTech business. We provide a differentiated solu-tion to customers, based on technical capability and service. We believe that our solu-tions are the most reliable, highest quality and best in class for most of our product lines.We provide sophisticated, robust solutions for our customers’ challenges, utilizing ourproprietary technology and process know-how.
As the economy continues to improve,market opportunities should expand inthis business. The greatest opportunitiesfor growth are in Latin America, Asia andRussia. We expect continuing concerns
• Be our customers’ most valued supplier, so they call us first to providesolutions for their challenges
• Use technology advantages to providecustomers with higher yields, morethroughput, lower costs and assis-tance with food safety issues
We believe that Airport Systems provides the highest quality, most reliable and safestground support equipment and passenger boarding bridges in the world. Our knowledgebase extends into airport planning, apron layout and gate operation, computerized con-trols and airport management systems. Airport Systems is a global leader in providingproducts and services that significantly advance the operational efficiency of airports, air-lines and air cargo companies, as well as the efficient and reliable cargo handling needsof the military.
In the near term, we believe that ourbest market opportunities in this seg-ment will be in improving internationalmarket share for our traditional productsand supplying increased quantities ofmilitary cargo handling equipment.
• Further expand our business basewith ground handling and airfreighttransport companies as well as airportauthorities worldwide
• Continue to execute the Halvorsenloader program for the U.S. Air Forcewhile exploring opportunities forexpanding our participation in militarymarkets
Energy Product ion Systems
Energy Processing Systems
FMC FoodTech
C o m p e t i t i v e S t r e n g t h s M a r k e t O p p o r t u n i t i e s S t r a t e g i e s f o r 2 0 0 5
Airport Systems
also believe that opportunities areimproving for subsea processing. Weexpect that surface market opportunitieswill continue to be strong in the UnitedStates, Europe, the Middle East and theAsia Pacific region.
facilities, benefiting material handlingsystems. Increases in rig activity andexploration and production spendingshould provide opportunities for fluidcontrol. We expect the most prominentnew geographic market opportunities tobe in China, Eastern Europe, Russia,Kazakhstan and Mexico, subject to theirability to support, upgrade or advanceinfrastructure.
about food safety to expand marketopportunities for our products that helpfood processors with this importantissue.
We anticipate expanding opportunities to serve narrow-body aircraft with ourRampSnake® baggage handling prod-uct line. Asia and Russia are our mostsignificant geographic growth marketopportunities.
• Add Singapore to worldwide SAP network
• Further develop innovative technolo-gies in subsea, surface and subseaprocessing
• Continue to seek opportunities toleverage our product portfolio toachieve synergies among our businesses
• Build on new market initiatives indeveloping countries
• Leverage our large installed base byproviding extensive aftermarket services
• Find innovative ways to reduce product costs on a continuing basis
• Continue to drive down costs
• Grow our service business by providing technical maintenance and support services directly to airportsand airlines
• Leverage established relationshipswith commercial airline and airportcustomers to market ourRampSnake® product offering
Fluid Control Equipment, including Flowl ine Products & Manifold Systems Loading Systems Meter ing Systems Mater ia l Handl ing & Bulk Conveying Systems Blending & Transfer Systems
Freezing, Chi l l ing & Proof ing Systems Coat ing & Cooking Equipment Frying & Fi l t rat ion Equipment Waterjet Port ioning Systems Potato Processing Systems Food Handl ing Systems Inspect ion Detect ion Systems (Color Sorters)
Commercial & Mi l i tary Cargo Loaders Deicers Push-back Tractors Passenger Boarding Br idges Automated Guided Vehicles A irport Services
Citrus Processing Systems Food Processing Systems (Ster i l izat ion & Pasteur izat ion) Asept ic Technology Process Control & Automation Fresh Produce Protect ive Coat ing & Label ing Systems
StrategicO u t l o o k
Management’s Discussion and
Analysis – a section of a report in
which management provides informa-
tion necessary to an understanding of
a company’s financial condition,
results of operations and cash flows.
Manifold – a subsea assembly that
provides an interface between the pro-
duction pipeline and flowline and the
well. The manifold performs several
functions, including collecting pro-
duced fluids from individual subsea
wells, distributing the electrical and
hydraulic systems and providing sup-
port for other subsea structures and
equipment.
Operating Profit – a business seg-
ment’s revenue, less its operating
expenses, excluding corporate staff
expenses, net interest expense,
income taxes and certain other
expenses.
Order Backlog – the estimated sales
value of unfilled, confirmed customer
orders for products and services at a
specified date.
Risers – the physical link between the
seabed and the topside of offshore
installations, for production, gas lift or
water injection purposes. Risers can
be either rigid or flexible and are criti-
cal components of these types of
installations.
Sale-Leaseback – sale of an asset for
cash with an agreement to lease it
back from the purchaser.
SALM (Single Anchor Legged
Mooring) System – a mooring system
utilizing a single anchor base and sin-
gle riser, designed to operate as an
unmanned marine terminal.
Semi-submersible Rig – a mobile off-
shore drilling or production unit that
floats on the water’s surface above the
subsea wellhead and is held in posi-
tion either by anchors or dynamic
positioning. The semi-submersible rig
gets its name from pontoons at its
base that are empty while being
towed to the drilling location and are
partially filled with water to steady the
rig over the well.
SPM (Single Point Mooring) System –
a mooring system that allows a tanker
to weathervane around a mooring
point.
Spar Platform – named for logs used
as buoys in shipping and moored in
place vertically, Spar production plat-
forms have been developed as an
alternative to conventional platforms. A
Spar platform consists of a large
diameter, single vertical cylinder sup-
porting a deck.
Statement of Cash Flow – a financial
statement that specifies the net cash a
company pays or receives during a
period.
Statement of Income – a financial
statement summarizing the company’s
revenues and expenses for a specific
period.
Subsea System – ranges from single
or multiple subsea wells producing to
a nearby platform, floating production
system or TLP to multiple wells pro-
ducing through a manifold and
pipeline system to a distant production
facility.
Subsea Tree – a “Christmas tree”
installed on the ocean floor. Also
called a “wet tree.”
TLP (Tension Leg Platform) – an off-
shore drilling platform attached to the
seafloor with tensioned steel tubes.
The buoyancy of the platform applies
tension to the tubes.
Topside – refers to the oil production
facilities above the water, usually on a
platform or production vessel, as
opposed to subsea production facili-
ties. Also refers to the above-water
location of certain subsea system
components, such as some control
systems.
Truss Spar Platform – this modified
version of the floating production Spar
features an open truss in the lower
hull, which reduces weight significantly
and lowers overall cost.
Ultra-deepwater – usually refers to
operations in water depths of 5,000
feet or greater.
Umbilicals – connections between
topside equipment and subsea equip-
ment. The number and type of umbili-
cals vary according to field require-
ments, and umbilicals may carry the
service lines, hydraulic tubes and elec-
tric cables and/or fiber optic lines.
Wellhead – the surface termination of
a wellbore that incorporates facilities
for installing casing hangers during the
well construction phase. The wellhead
also incorporates a means of hanging
the production tubing and installing
the Christmas tree and surface flow-
control facilities in preparation for the
production phase of the well.
37
Balance Sheet – a financial statement
showing the nature and amount of a
company’s assets, liabilities and stock-
holders’ equity at a reporting date.
CALM (Catenary Anchor Leg Mooring)
Buoy – a flexible marine export termi-
nal system that utilizes a fixed, floating
buoy anchored to the seabed. The
system enables fluids to be transferred
between a moored tanker and either
onshore or offshore facilities.
Capital Employed – a business seg-
ment’s assets, net of liabilities, exclud-
ing debt, pension, income taxes and
LIFO reserves.
Cash Equivalents – highly liquid
investments with original maturities of
three months or less.
Cell Spar – similar in principle to other
Spars, the cell Spar configuration fea-
tures a deck supported by a long,
buoyant cylindrical tank hull section
moored to the seabed. The major dif-
ference lies in the design of the cylin-
drical section: instead of a long, single
hard tank, or hard tank and truss sec-
tion as in the truss spar, the cell spar’s
hard body is made up of several
smaller, identically-sized cylinders
wrapped around a center cylinder of
the same dimensions.
Christmas Tree – an assembly of
control valves, gauges and chokes
that control oil and gas flow in a com-
pleted well. Christmas trees installed
on the ocean floor are referred to as
subsea, or “wet,” trees. Christmas
trees installed on land or platforms are
referred to as “dry” trees.
Commercial Paper – an unsecured
obligation issued by a corporation or
bank to finance its short-term credit
needs, with maturities ranging from
one day to 270 days.
Custody Transfer – in metering, refers
to a measurement device used in cal-
culating payment for product.
Deepwater – generally defined as
operations in water depths of 1,500
feet or greater.
Depreciation – a noncash expense
representing the amortization of the
cost of fixed assets, such as plant and
equipment, over the assets’ estimated
useful lives.
Development Well – a well drilled in a
proven field to complete a pattern of
production.
Dynamic Positioning – systems that
use computer controlled directional
propellers to keep a drilling or produc-
tion vessel (such as a semi-sub-
mersible) stationary relative to the
seabed, compensating for wind, wave
or current.
Earnings Per Share – net income
divided by the weighted-average num-
ber of shares outstanding.
Effective Tax Rate – provision for
income taxes as a percentage of earn-
ings before income taxes and
accounting changes.
Flow Control Equipment – mechani-
cal devices for the purpose of direct-
ing, managing and controlling the flow
of produced or injected fluids.
FPSO (Floating Production, Storage
and Offloading) System – a system
contained on a large, tanker type ves-
sel and moored to the seafloor. An
FPSO is designed to process and
stow production from nearby subsea
wells and to periodically offload the
stored oil to a smaller shuttle tanker,
which transports the oil to onshore
facilities for further processing.
FSO (Floating Storage and Offloading)
System – essentially the same as an
FPSO without the production facilities.
Goodwill – the excess of the price
paid for a business acquisition over
the fair value of net assets acquired.
HP/HT (High Pressure/High
Temperature) – refers to deepwater
environments producing pressures as
great as 15,000 pounds per square
inch (psi) and temperatures as high as
350 degrees Fahrenheit (˚F).
Inbound Orders – the estimated sales
value of confirmed customer orders
received for products and services
during a specified period.
Intervention System – a system used
for deployment and retrieval of equip-
ment such as subsea control mod-
ules, flow control modules and pres-
sure caps; also used to perform pull-in
and connection of umbilicals and flow-
lines and to enable diagnostic and well
manipulation operations.
Jumpers – connections for various
subsea equipment, including tie-ins
between trees, manifolds or flowline
skids.
FMC Technologies Inc. Annual Report 2004 36 Glossary
G l o s s a r y o f T e r m s
Management’s Discussion and
Analysis – a section of a report in
which management provides informa-
tion necessary to an understanding of
a company’s financial condition,
results of operations and cash flows.
Manifold – a subsea assembly that
provides an interface between the pro-
duction pipeline and flowline and the
well. The manifold performs several
functions, including collecting pro-
duced fluids from individual subsea
wells, distributing the electrical and
hydraulic systems and providing sup-
port for other subsea structures and
equipment.
Operating Profit – a business seg-
ment’s revenue, less its operating
expenses, excluding corporate staff
expenses, net interest expense,
income taxes and certain other
expenses.
Order Backlog – the estimated sales
value of unfilled, confirmed customer
orders for products and services at a
specified date.
Risers – the physical link between the
seabed and the topside of offshore
installations, for production, gas lift or
water injection purposes. Risers can
be either rigid or flexible and are criti-
cal components of these types of
installations.
Sale-Leaseback – sale of an asset for
cash with an agreement to lease it
back from the purchaser.
SALM (Single Anchor Legged
Mooring) System – a mooring system
utilizing a single anchor base and sin-
gle riser, designed to operate as an
unmanned marine terminal.
Semi-submersible Rig – a mobile off-
shore drilling or production unit that
floats on the water’s surface above the
subsea wellhead and is held in posi-
tion either by anchors or dynamic
positioning. The semi-submersible rig
gets its name from pontoons at its
base that are empty while being
towed to the drilling location and are
partially filled with water to steady the
rig over the well.
SPM (Single Point Mooring) System –
a mooring system that allows a tanker
to weathervane around a mooring
point.
Spar Platform – named for logs used
as buoys in shipping and moored in
place vertically, Spar production plat-
forms have been developed as an
alternative to conventional platforms. A
Spar platform consists of a large
diameter, single vertical cylinder sup-
porting a deck.
Statement of Cash Flow – a financial
statement that specifies the net cash a
company pays or receives during a
period.
Statement of Income – a financial
statement summarizing the company’s
revenues and expenses for a specific
period.
Subsea System – ranges from single
or multiple subsea wells producing to
a nearby platform, floating production
system or TLP to multiple wells pro-
ducing through a manifold and
pipeline system to a distant production
facility.
Subsea Tree – a “Christmas tree”
installed on the ocean floor. Also
called a “wet tree.”
TLP (Tension Leg Platform) – an off-
shore drilling platform attached to the
seafloor with tensioned steel tubes.
The buoyancy of the platform applies
tension to the tubes.
Topside – refers to the oil production
facilities above the water, usually on a
platform or production vessel, as
opposed to subsea production facili-
ties. Also refers to the above-water
location of certain subsea system
components, such as some control
systems.
Truss Spar Platform – this modified
version of the floating production Spar
features an open truss in the lower
hull, which reduces weight significantly
and lowers overall cost.
Ultra-deepwater – usually refers to
operations in water depths of 5,000
feet or greater.
Umbilicals – connections between
topside equipment and subsea equip-
ment. The number and type of umbili-
cals vary according to field require-
ments, and umbilicals may carry the
service lines, hydraulic tubes and elec-
tric cables and/or fiber optic lines.
Wellhead – the surface termination of
a wellbore that incorporates facilities
for installing casing hangers during the
well construction phase. The wellhead
also incorporates a means of hanging
the production tubing and installing
the Christmas tree and surface flow-
control facilities in preparation for the
production phase of the well.
37
Balance Sheet – a financial statement
showing the nature and amount of a
company’s assets, liabilities and stock-
holders’ equity at a reporting date.
CALM (Catenary Anchor Leg Mooring)
Buoy – a flexible marine export termi-
nal system that utilizes a fixed, floating
buoy anchored to the seabed. The
system enables fluids to be transferred
between a moored tanker and either
onshore or offshore facilities.
Capital Employed – a business seg-
ment’s assets, net of liabilities, exclud-
ing debt, pension, income taxes and
LIFO reserves.
Cash Equivalents – highly liquid
investments with original maturities of
three months or less.
Cell Spar – similar in principle to other
Spars, the cell Spar configuration fea-
tures a deck supported by a long,
buoyant cylindrical tank hull section
moored to the seabed. The major dif-
ference lies in the design of the cylin-
drical section: instead of a long, single
hard tank, or hard tank and truss sec-
tion as in the truss spar, the cell spar’s
hard body is made up of several
smaller, identically-sized cylinders
wrapped around a center cylinder of
the same dimensions.
Christmas Tree – an assembly of
control valves, gauges and chokes
that control oil and gas flow in a com-
pleted well. Christmas trees installed
on the ocean floor are referred to as
subsea, or “wet,” trees. Christmas
trees installed on land or platforms are
referred to as “dry” trees.
Commercial Paper – an unsecured
obligation issued by a corporation or
bank to finance its short-term credit
needs, with maturities ranging from
one day to 270 days.
Custody Transfer – in metering, refers
to a measurement device used in cal-
culating payment for product.
Deepwater – generally defined as
operations in water depths of 1,500
feet or greater.
Depreciation – a noncash expense
representing the amortization of the
cost of fixed assets, such as plant and
equipment, over the assets’ estimated
useful lives.
Development Well – a well drilled in a
proven field to complete a pattern of
production.
Dynamic Positioning – systems that
use computer controlled directional
propellers to keep a drilling or produc-
tion vessel (such as a semi-sub-
mersible) stationary relative to the
seabed, compensating for wind, wave
or current.
Earnings Per Share – net income
divided by the weighted-average num-
ber of shares outstanding.
Effective Tax Rate – provision for
income taxes as a percentage of earn-
ings before income taxes and
accounting changes.
Flow Control Equipment – mechani-
cal devices for the purpose of direct-
ing, managing and controlling the flow
of produced or injected fluids.
FPSO (Floating Production, Storage
and Offloading) System – a system
contained on a large, tanker type ves-
sel and moored to the seafloor. An
FPSO is designed to process and
stow production from nearby subsea
wells and to periodically offload the
stored oil to a smaller shuttle tanker,
which transports the oil to onshore
facilities for further processing.
FSO (Floating Storage and Offloading)
System – essentially the same as an
FPSO without the production facilities.
Goodwill – the excess of the price
paid for a business acquisition over
the fair value of net assets acquired.
HP/HT (High Pressure/High
Temperature) – refers to deepwater
environments producing pressures as
great as 15,000 pounds per square
inch (psi) and temperatures as high as
350 degrees Fahrenheit (˚F).
Inbound Orders – the estimated sales
value of confirmed customer orders
received for products and services
during a specified period.
Intervention System – a system used
for deployment and retrieval of equip-
ment such as subsea control mod-
ules, flow control modules and pres-
sure caps; also used to perform pull-in
and connection of umbilicals and flow-
lines and to enable diagnostic and well
manipulation operations.
Jumpers – connections for various
subsea equipment, including tie-ins
between trees, manifolds or flowline
skids.
FMC Technologies Inc. Annual Report 2004 36 Glossary
G l o s s a r y o f T e r m s
Asbjørn Larsen 1
Retired President and ChiefExecutive Officer, Saga PetroleumASA
Asbjørn Larsen served as Presidentand Chief Executive Officer of SagaPetroleum ASA from January 1979until his retirement in May 1998. Heserved as President of Sagapart a.s.(limited) in 1973 and from 1976 asVice President (Economy and Finance)of Saga Petroleum. From 1966 to1973, Mr. Larsen was a manager ofthe Norwegian Shipowners’Association. He is currently Chairmanof the Board of Belships ASA and ViceChairman of the Board of SagaFjordbase AS. Mr. Larsen is a memberof the Council of Det Norske Veritasand is the Chairman of DNV’s ControlCommittee. He also is a member ofthe Board of Selvaag Gruppen AS andof the Board of the Danish Oil andNatural Gas Company – DONG AS(Copenhagen).
Edward J. Mooney 1
Retired Délégué Général-NorthAmerica, Suez Lyonnaise des Eaux
Edward J. Mooney served as DéléguéGénéral-North America, SuezLyonnaise des Eaux from March 2000until his retirement in March 2001.From 1994 to 2001, he was Chairmanand Chief Executive Officer of NalcoChemical Company. Mr. Mooneyserves on the Boards of Directors ofFMC Corporation, The Northern TrustCompany and Cabot MicroelectronicsCorporation.
James M. Ringler 1
Retired Vice Chairman, Illinois ToolWorks, Inc.
James M. Ringler served as ViceChairman of Illinois Tool Works Inc.until his retirement in 2004. Prior tojoining Illinois Tool Works, he wasChairman, President and ChiefExecutive Officer of PremarkInternational, Inc. from October 1997until Premark merged with Illinois ToolWorks in November 1999. Mr. Ringlerjoined Premark in 1990 and served asExecutive Vice President and ChiefOperating Officer until 1996. From1986 to 1990, he was President ofWhite Consolidated Industries’ MajorAppliance Group, and from 1982 to1986, he was President and ChiefOperating Officer of The TappanCompany. Prior to joining The TappanCompany in 1976, Mr. Ringler was aconsulting manager with ArthurAndersen & Co. He serves on theBoards of Directors of The DowChemical Company, Corn ProductsInternational, Inc., Autoliv Inc. andNCR Corporation.
Richard A. Pattarozzi 2, 3
Retired Vice President, Shell OilCompany
Richard A. Pattarozzi served as VicePresident of Shell Oil Company fromMarch 1999 until his retirement inJanuary 2000. He previously served asPresident and Chief Executive Officerfor both Shell DeepwaterDevelopment, Inc. and ShellDeepwater Production, Inc. from 1995until 1999. Mr. Pattarozzi serves onthe Boards of Directors of GlobalIndustries, Ltd., Stone Energy, Inc.,Transocean Inc., Tidewater, Inc. andSuperior Energy Services, Inc.
FMC Technologies’ Directors are (seated, left to right) James Ringler, Joseph
Netherland and James Thompson; (standing, left to right) Thomas Hamilton,
Mike Bowlin, Richard Pattarozzi, Edward Mooney and Asbjørn Larsen.
39 Directors and Officers
James R. Thompson 2, 3
Former Governor of Illinois;Chairman, Chairman of the ExecutiveCommittee and Partner, Law Firm ofWinston & Strawn
James R. Thompson has served asChairman of the Chicago law firm ofWinston & Strawn since January1993. He joined the firm in January1991 after serving four terms asGovernor of the State of Illinois. Priorto his terms as Governor, he served asU.S. Attorney for the Northern Districtof Illinois from 1971-1975. GovernorThompson served as the Chief of theDepartment of Law Enforcement andPublic Protection in the Office of theAttorney General of Illinois, as anAssociate Professor at NorthwesternUniversity School of Law and as anAssistant State’s Attorney of CookCounty. Governor Thompson was amember of the National Commissionon Terrorist Attacks Upon the UnitedStates (also known as the 9/11Commission). He is the Chairman ofthe United HEREIU Public ReviewBoard and serves on the Boards ofDirectors of the Chicago Board ofTrade, FMC Corporation, NavigantConsulting Group, Inc., Maximus, Inc.and Hollinger International, Inc.
Nominating & Governance CommitteeAudit Committee Compensation Committee1 2 3
Joseph H. Netherland
Chairman, President and ChiefExecutive Officer, FMC Technologies, Inc.
Joseph H. Netherland was electedChairman, President and ChiefExecutive Officer and a director ofFMC Technologies in 2001. He previ-ously served as President and a direc-tor of FMC Corporation from June1999 after serving as Executive VicePresident of FMC Corporation begin-ning in 1998. He was the GeneralManager of FMC Corporation’s Energyand Transportation Group from 1992to 2001. Mr. Netherland becameGeneral Manager of FMCCorporation’s former PetroleumEquipment Group and GeneralManager of its former SpecializedMachinery Group in 1985 and 1989,respectively. He serves on the Boardsof Directors of the American PetroleumInstitute (API), the PetroleumEquipment Suppliers Association,Newfield Exploration Company andthe National Association ofManufacturers. Mr. Netherland also isa member of the Advisory Board ofthe Department of Engineering atTexas A&M University.
Mike R. Bowlin 2, 3
Retired Chairman, Atlantic RichfieldCompany
Mike R. Bowlin served as Chairman ofAtlantic Richfield Company from 1995until his retirement in April 2000. Inaddition, he held the position of ChiefExecutive Officer from July 1994 untilApril 2000. From 1992 until his elec-tion to Chief Executive Officer ofARCO in 1994, Mr. Bowlin served asExecutive Vice President and then asPresident and Chief Operating Officerof ARCO. Mr. Bowlin joined ARCO in1969 and became President of ARCOCoal Company in 1985. He served asARCO International Oil and GasCompany’s Senior Vice President from1987 to 1992 and President from1992 to 1993. Mr. Bowlin serves onthe Board of Directors of EdwardsLifesciences Corporation and HorizonHealth Company. He is a Trustee ofthe Los Angeles World Affairs Counciland a former Chairman of the Boardof API.
Thomas M. Hamilton 1
Retired Chairman, President andChief Executive Officer, EEXCorporation
Thomas M. Hamilton served as theChairman, President and ChiefExecutive Officer of EEX Corporationfrom January 1997 until his retirementin November 2002. From 1992 to1997, he served as Executive VicePresident of Pennzoil Company andas President of Pennzoil Explorationand Production Company. Mr.Hamilton was a director of BPExploration, where he served as ChiefExecutive Officer of the Frontier andInternational Operating Company ofBP Exploration from 1989 to 1991 andas the General Manager for EastAsia/Australia/Latin America from1988 to 1989. From 1985 to 1988,Mr. Hamilton held the position ofSenior Vice President of Exploration atStandard Oil Company, prior to itsbeing merged into BP.
FMC Technologies Inc. Annual Report 2004 38
B o a r d o f D i r e c t o r s
Asbjørn Larsen 1
Retired President and ChiefExecutive Officer, Saga PetroleumASA
Asbjørn Larsen served as Presidentand Chief Executive Officer of SagaPetroleum ASA from January 1979until his retirement in May 1998. Heserved as President of Sagapart a.s.(limited) in 1973 and from 1976 asVice President (Economy and Finance)of Saga Petroleum. From 1966 to1973, Mr. Larsen was a manager ofthe Norwegian Shipowners’Association. He is currently Chairmanof the Board of Belships ASA and ViceChairman of the Board of SagaFjordbase AS. Mr. Larsen is a memberof the Council of Det Norske Veritasand is the Chairman of DNV’s ControlCommittee. He also is a member ofthe Board of Selvaag Gruppen AS andof the Board of the Danish Oil andNatural Gas Company – DONG AS(Copenhagen).
Edward J. Mooney 1
Retired Délégué Général-NorthAmerica, Suez Lyonnaise des Eaux
Edward J. Mooney served as DéléguéGénéral-North America, SuezLyonnaise des Eaux from March 2000until his retirement in March 2001.From 1994 to 2001, he was Chairmanand Chief Executive Officer of NalcoChemical Company. Mr. Mooneyserves on the Boards of Directors ofFMC Corporation, The Northern TrustCompany and Cabot MicroelectronicsCorporation.
James M. Ringler 1
Retired Vice Chairman, Illinois ToolWorks, Inc.
James M. Ringler served as ViceChairman of Illinois Tool Works Inc.until his retirement in 2004. Prior tojoining Illinois Tool Works, he wasChairman, President and ChiefExecutive Officer of PremarkInternational, Inc. from October 1997until Premark merged with Illinois ToolWorks in November 1999. Mr. Ringlerjoined Premark in 1990 and served asExecutive Vice President and ChiefOperating Officer until 1996. From1986 to 1990, he was President ofWhite Consolidated Industries’ MajorAppliance Group, and from 1982 to1986, he was President and ChiefOperating Officer of The TappanCompany. Prior to joining The TappanCompany in 1976, Mr. Ringler was aconsulting manager with ArthurAndersen & Co. He serves on theBoards of Directors of The DowChemical Company, Corn ProductsInternational, Inc., Autoliv Inc. andNCR Corporation.
Richard A. Pattarozzi 2, 3
Retired Vice President, Shell OilCompany
Richard A. Pattarozzi served as VicePresident of Shell Oil Company fromMarch 1999 until his retirement inJanuary 2000. He previously served asPresident and Chief Executive Officerfor both Shell DeepwaterDevelopment, Inc. and ShellDeepwater Production, Inc. from 1995until 1999. Mr. Pattarozzi serves onthe Boards of Directors of GlobalIndustries, Ltd., Stone Energy, Inc.,Transocean Inc., Tidewater, Inc. andSuperior Energy Services, Inc.
FMC Technologies’ Directors are (seated, left to right) James Ringler, Joseph
Netherland and James Thompson; (standing, left to right) Thomas Hamilton,
Mike Bowlin, Richard Pattarozzi, Edward Mooney and Asbjørn Larsen.
39 Directors and Officers
James R. Thompson 2, 3
Former Governor of Illinois;Chairman, Chairman of the ExecutiveCommittee and Partner, Law Firm ofWinston & Strawn
James R. Thompson has served asChairman of the Chicago law firm ofWinston & Strawn since January1993. He joined the firm in January1991 after serving four terms asGovernor of the State of Illinois. Priorto his terms as Governor, he served asU.S. Attorney for the Northern Districtof Illinois from 1971-1975. GovernorThompson served as the Chief of theDepartment of Law Enforcement andPublic Protection in the Office of theAttorney General of Illinois, as anAssociate Professor at NorthwesternUniversity School of Law and as anAssistant State’s Attorney of CookCounty. Governor Thompson was amember of the National Commissionon Terrorist Attacks Upon the UnitedStates (also known as the 9/11Commission). He is the Chairman ofthe United HEREIU Public ReviewBoard and serves on the Boards ofDirectors of the Chicago Board ofTrade, FMC Corporation, NavigantConsulting Group, Inc., Maximus, Inc.and Hollinger International, Inc.
Nominating & Governance CommitteeAudit Committee Compensation Committee1 2 3
Joseph H. Netherland
Chairman, President and ChiefExecutive Officer, FMC Technologies, Inc.
Joseph H. Netherland was electedChairman, President and ChiefExecutive Officer and a director ofFMC Technologies in 2001. He previ-ously served as President and a direc-tor of FMC Corporation from June1999 after serving as Executive VicePresident of FMC Corporation begin-ning in 1998. He was the GeneralManager of FMC Corporation’s Energyand Transportation Group from 1992to 2001. Mr. Netherland becameGeneral Manager of FMCCorporation’s former PetroleumEquipment Group and GeneralManager of its former SpecializedMachinery Group in 1985 and 1989,respectively. He serves on the Boardsof Directors of the American PetroleumInstitute (API), the PetroleumEquipment Suppliers Association,Newfield Exploration Company andthe National Association ofManufacturers. Mr. Netherland also isa member of the Advisory Board ofthe Department of Engineering atTexas A&M University.
Mike R. Bowlin 2, 3
Retired Chairman, Atlantic RichfieldCompany
Mike R. Bowlin served as Chairman ofAtlantic Richfield Company from 1995until his retirement in April 2000. Inaddition, he held the position of ChiefExecutive Officer from July 1994 untilApril 2000. From 1992 until his elec-tion to Chief Executive Officer ofARCO in 1994, Mr. Bowlin served asExecutive Vice President and then asPresident and Chief Operating Officerof ARCO. Mr. Bowlin joined ARCO in1969 and became President of ARCOCoal Company in 1985. He served asARCO International Oil and GasCompany’s Senior Vice President from1987 to 1992 and President from1992 to 1993. Mr. Bowlin serves onthe Board of Directors of EdwardsLifesciences Corporation and HorizonHealth Company. He is a Trustee ofthe Los Angeles World Affairs Counciland a former Chairman of the Boardof API.
Thomas M. Hamilton 1
Retired Chairman, President andChief Executive Officer, EEXCorporation
Thomas M. Hamilton served as theChairman, President and ChiefExecutive Officer of EEX Corporationfrom January 1997 until his retirementin November 2002. From 1992 to1997, he served as Executive VicePresident of Pennzoil Company andas President of Pennzoil Explorationand Production Company. Mr.Hamilton was a director of BPExploration, where he served as ChiefExecutive Officer of the Frontier andInternational Operating Company ofBP Exploration from 1989 to 1991 andas the General Manager for EastAsia/Australia/Latin America from1988 to 1989. From 1985 to 1988,Mr. Hamilton held the position ofSenior Vice President of Exploration atStandard Oil Company, prior to itsbeing merged into BP.
FMC Technologies Inc. Annual Report 2004 38
B o a r d o f D i r e c t o r s
FMC Technologies Inc. Annual Report 2004 40
Joseph H. Netherland *Chairman, President and Chief Executive Officer
Peter D. Kinnear *Executive Vice President
William H. Schumann, III *Senior Vice President and Chief Financial Officer
Charles H. Cannon, Jr. *Senior Vice President –FMC FoodTech and Airport Systems
Jeffrey W. Carr *Vice President, General Counsel andSecretary
Randall S. EllisVice President and Chief InformationOfficer
John T. GrempVice President – Energy Production Systems
David W. GrzebinskiTreasurer
Tore HalvorsenVice President –Energy Production Systems
Ronald D. Mambu *Vice President and Controller
Michael W. Murray *Vice President –Human Resources
Robert L. Potter *Vice President –Energy Processing Systems
Executive Officer*
O f f i c e r s
M a n a g e m e n t D i s c u s s i o n a n d A n a l y s i s
41 Management’s Discussion and Analysis
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements
Statement under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995: FMC Technologies, Inc. and its representatives
may from time to time make written or oral statements that are “forward-looking” and provide information that is not historical in nature, including
statements that are or will be contained in this report, the notes to our consolidated financial statements, our other filings with the Securities and
Exchange Commission, our press releases and conference call presentations and our other communications to our stockholders. These
statements involve known and unknown risks, uncertainties and other factors that may be outside of our control and may cause actual results to
differ materially from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statement. These
factors include, among other things, the risk factors listed below.
In some cases, forward-looking statements can be identified by such words or phrases as “will likely result,” “is confident that,” “expects,”
“should,” “could,” “may,” “will continue to,” “believes,” “anticipates,” “predicts,” “forecasts,” “estimates,” “projects,” “potential,” “intends” or similar
expressions identifying “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including the
negative of those words and phrases. Such forward-looking statements are based on our current views and assumptions regarding future events,
future business conditions and our outlook based on currently available information. We wish to caution you not to place undue reliance on any
such forward-looking statements, which speak only as of the date made and involve judgments.
In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, we are identifying below important factors that
could affect our financial performance and could cause our actual results for future periods to differ materially from any opinions or statements
expressed with respect to future periods.
Among the important factors that could have an impact on our ability to achieve our operating results and growth plan goals are:
• Increased competition from other companies operating in our industries, some of which may have capital resources equivalent
to or greater than ours;
• Instability and unforeseen changes in economic, political and social conditions in the international markets where we conduct
business, including economically and politically volatile areas such as West Africa, the Middle East, Latin America and the Asia
Pacific region, which could cause or contribute to: foreign currency fluctuations; inflationary and recessionary markets; civil
unrest, terrorist attacks and wars; seizure of assets; trade restrictions; foreign ownership restrictions; restrictions on
operations, trade practices, trade partners and investment decisions resulting from domestic and foreign laws and regulations;
changes in governmental laws and regulations and the level of enforcement of laws and regulations; inability to repatriate
income or capital; and reductions in the availability of qualified personnel;
• Increasing business activity involving large subsea and/or offshore projects, which exposes us to increased risks due to the
significant technical and logistical challenges of these projects, their longer lead times and the requirement to dedicate
substantial engineering effort and other capital resources to these projects;
• Inability to complete a project as scheduled or to meet other contractual obligations to our customers, potentially leading to
reduced profits or even losses;
• Severe weather conditions and natural disasters which may cause crop damage, affect the price of oil and gas, and cause
damage or delays in offshore project locations, which may adversely impact the demand for our products and impair our
ability to complete significant projects within required time frames or without incurring significant unanticipated costs;
• Significant changes in interest rates or taxation rates;
• Unanticipated increases in raw material prices (including the price of steel) compared with historical levels, or shortages of raw
materials;
• Inability to implement and effect price increases for our products and services when necessary;
• Inherent risks in the marketplace associated with new product introductions and technologies and the development of new
manufacturing processes;
Management’s Discussion and Analysis 42
• Changes in current prices for crude oil and natural gas and the perceived stability and sustainability of those prices as well as
long-term forecasts can impact capital spending decisions by oil and gas exploration and production companies and may
lead to significant changes in the level of oil and gas exploration, production, development and processing and affect the
demand for our products and services;
• The effect of governmental policies regarding exploration and development of oil and gas reserves, the ability of the
Organization of Petroleum Exporting Countries (“OPEC”) to set and maintain production levels and pricing and the level of
production in non-OPEC countries;
• Changes in capital spending levels by the U.S. Government and the impact of economic conditions and political and social
issues on government appropriation decisions, including the procurement of Halvorsen loaders by the U.S. military;
• Changes in business strategies and capital spending levels in the airline industry due to changes in international, national,
regional and local economic conditions, war, political instability and terrorism (and the threat thereof), consumer perceptions of
airline safety, and costs associated with safety, security and the weather;
• Consolidation of customers in the petroleum exploration, commercial food processing or airline or air freight industries;
• Unanticipated issues related to food safety, including costs related to product recalls, regulatory compliance and any related
claims or litigation;
• Freight transportation delays;
• Our ability to integrate, operate and manage newly acquired business operations or joint venture investments, particularly in
situations where we cannot control the actions of our joint venture partner and have only limited rights in controlling the
actions of the joint venture;
• The risk of not realizing our investment in MODEC, Inc., due to potential impairment in its market value, and/or the potential –
even likely – illiquidity of this investment;
• Conditions affecting domestic and international capital and equity markets;
• Unexpected changes in the size and timing of regional and/or product markets, particularly for short lead-time products;
• Risks associated with litigation, including changes in applicable laws, the development of facts in individual cases, settlement
opportunities, the actions of plaintiffs, judges and juries and the possibility that current reserves relating to our ongoing
litigation may prove inadequate;
• The effect of the loss of major contracts or losses from fixed price contracts;
• The effect of the loss or termination of a strategic alliance with a major customer, particularly as it relates to our Energy
Production Systems businesses;
• The effect of labor-related actions, such as strikes, slowdowns and facility occupations;
• The loss of key management or other personnel;
• Developments in technology of competitors and customers that could impact our market share and the demand for our
products and services;
• Supply and demand imbalances of certain commodities such as citrus fruit, fruit juices and tomatoes; and
• Environmental and asbestos-related liabilities that may arise in the future that exceed our current reserves.
We wish to caution that the foregoing list of important factors may not be all-inclusive and specifically decline to undertake any obligation to
publicly revise any forward-looking statements that have been made to reflect events or circumstances after the date of such statements or to
reflect the occurrence of anticipated or unanticipated events.
43 Management’s Discussion and Analysis
The following discussion and analysis of our financial condition and results of operations for the fiscal years ended December 31, 2004, 2003 and
2002, should be read in conjunction with our audited consolidated financial statements, and the notes to those statements, and our selected
historical financial data included elsewhere in this document.
BackgroundFMC Technologies, Inc. was incorporated in Delaware on November 13, 2000, and was a wholly owned subsidiary of FMC Corporation until its
initial public offering on June 14, 2001, when the Company sold 17.0% of its common stock to the public.
On December 31, 2001, FMC Corporation distributed its remaining 83.0% ownership of FMC Technologies' common stock to FMC Corporation's
shareholders in the form of a dividend.
Executive Overview We design, manufacture and service sophisticated machinery and systems for customers in the energy, food processing and air transportation
industries. We have operations in 16 countries and are strategically located to facilitate delivery of our products and services to our customers.
We operate in four business segments: Energy Production Systems, Energy Processing Systems, FoodTech and Airport Systems. Our business
segments serve diverse industries with a wide customer base. We focus on economic and industry-specific drivers and key risk factors affecting
each of our business segments as we formulate our strategic plans and make decisions related to allocating capital and human resources. The
following discussion provides examples of the kinds of economic and industry factors and key risks that we consider.
The results of our Energy Systems businesses are primarily driven by changes in exploration and production spending by oil and gas companies,
which in part depend upon current and anticipated future crude oil and natural gas prices and production volumes. Fluctuations in raw material
prices, such as the increase in steel prices in the past year, affect product costs in many of our Energy Systems business units. However, in most
of these business units, we have been able to pass on steel cost increases to our customers. Our Energy Production Systems business is
affected by trends in land and offshore oil and gas production, including shallow and deepwater output. Additionally, given the substantial capital
investments required from our customers to complete an offshore project, our customers’ overall profitability influences our results. Our Energy
Processing Systems business results reflect spending by oilfield service companies and engineering construction companies for equipment and
systems that facilitate the measurement and transportation of crude oil and natural gas. The level of production activity worldwide influences
spending decisions, and we use rig count as one indicator of demand.
Our FoodTech business results reflect the level of capital investment being made by our food processing customers. The level of capital spending
also is influenced by changing consumer preferences, public perception of food safety, conditions in the agricultural sector, such as weather, that
affect commodity prices, and by our customers’ overall profitability. Additionally, FoodTech volumes may fluctuate as a result of consolidation of
customers in the commercial food processing industry.
The results of our Airport Systems business are highly dependent upon the profitability of our customers in the airline and air cargo markets. Their
profitability is affected by fluctuations in passenger and freight traffic and the volatility of operating expenses, including the impact of costs related
to labor, fuel and airline security. In addition, results in our Airport Systems business are also influenced by the level of purchases of our Halvorsen
loaders by the U.S. Air Force, which depend upon governmental funding approvals. Similar to Energy Production Systems, rising steel prices have
increased costs in Airport Systems, especially in our Jetway® business. Changes in significant raw material prices, such as steel, will continue to
impact our Airport Systems results.
We also focus on key risk factors when determining our overall strategy and making decisions for allocating capital. These factors include risks
associated with the global economic outlook, product obsolescence, and the competitive environment. We address these risks in our business
strategies, which incorporate continuing development of leading edge technologies, cultivating strong customer relationships, and implementing
strategic international expansion.
In 2004, we continued to emphasize technological advancement in all of our segments. In Energy Production Systems, we continued the
development of an all-electric subsea production system, which will use simpler controls than conventional systems that rely on hydraulics.
FoodTech launched a variety of new products during 2004, including a waterjet portioning system for poultry and meat products. In 2004, Airport
Systems began marketing the RampSnake® automated baggage loader for use in narrow-body aircraft. This product is designed to reduce the
manual effort to move baggage into the airplane. We are committed to continuing our investments in technological innovations to expand our
technology base, develop new products and increase profitability.
We have developed close working relationships with our customers in all of our business segments. Our Energy Production Systems business
results reflect our ability to build long-term alliances with oil and gas companies that are actively engaged in offshore deepwater development, and
provide solutions to their needs in a timely and cost-effective manner. We have formed similar collaborative relationships with oilfield service
companies in Energy Processing Systems, air cargo companies in Airport Systems and citrus processors in FoodTech. We believe that by
working closely with our customers that we enhance our competitive advantage, strengthen our market positions and improve our results.
In all of our segments, we serve customers from around the world. During 2004, 67% of our total sales were to non-U.S. locations. We evaluate
international markets and pursue opportunities that fit our business model. For example, we have targeted opportunities in West Africa and Asia
Pacific because of the offshore drilling potential in those regions, and we have identified a market for Jetway® passenger boarding bridges in Asia.
Management’s Discussion and Analysis 44
As we evaluate our operating results, we view our business segments by product line and consider performance indicators like segment revenues,
operating profit and capital employed, in addition to the level of inbound orders and order backlog. As we analyze our financial condition, items of
importance include factors that impact our liquidity and capital resources, including working capital, net debt and access to capital.
Consolidated Results of Operations2004 Compared With 2003
FMC Technologies’ total revenue for fiscal year 2004 increased by $460.6 million, or 20%, to $2,767.7 million, primarily due to continued growth in
our Energy Systems’ businesses. In 2004, our technological capabilities enabled us to continue to benefit from the growing demand for the supply
of equipment used in the major oil and gas producing regions throughout the world. To a lesser extent, the increase in 2004 revenue also
reflected higher revenue in the Airport Systems business segment. Of the total increase in sales, $88.7 million was attributable to the favorable
impact of foreign currency translation.
Cost of sales and services for the year ended December 31, 2004 was $2,266.3 million, an increase of $422.7 million compared with 2003. Cost
of sales and services totaled 81.9% of sales, up from 79.9% in 2003. The increase in cost of sales and services resulted primarily from higher
sales volumes during 2004. The impact of foreign currency translation and a provision for anticipated losses on our contract with Sonatrach-TRC,
the Algerian Oil and Gas Company (“Sonatrach”) were responsible for 18% and 5% of the increase, respectively, in cost of sales and services.
These increases in cost were partially offset by the positive impact of cost saving measures and a more favorable product mix in 2004.
Selling, general and administrative expense for the year ended December 31, 2004, increased $27.8 million, or 8.9%, compared to the year ended
December 31, 2003. Unfavorable changes in foreign currency translation represented $9.3 million of the increase. The remaining increase reflected
higher employee related costs associated with business expansion, especially in our Energy Production Systems business segment. In 2004,
selling, general and administrative expenses were 12.3% of sales, down from 13.5% of sales in 2003.
Pre-tax income in 2004 increased to $159.0 million ($116.7 million after tax), from income of $95.6 million ($68.9 million after tax) in 2003. The
increase in 2004 income was primarily attributable to a $60.4 million gain ($36.1 million after tax) on the conversion of our investment in MODEC
International LLC, and the positive impact of higher sales volumes. In addition, 2004 net income reflected the benefit of tax adjustments of $11.9
million resulting from a favorable judgment in a tax dispute and the resolution of foreign tax audits in the fourth quarter of 2004. These increases
were partially offset by the negative impact of two charges recorded against income in 2004. We recorded a loss provision in Energy Production
Systems of $21.4 million ($13.1 million after tax) on the Sonatrach project, mainly due to the effect of severe weather conditions. In Energy
Processing Systems, a $6.5 million impairment charge ($6.1 million after tax) was required to write off goodwill associated with the blending and
transfer product line. Lower operating profit from FoodTech also contributed to the unfavorable comparison.
The 2004 gain on conversion of our investment in MODEC International LLC was associated with our decision to exchange our 37.5% interest in
MODEC International LLC for cash and shares of common stock of MODEC, Inc. MODEC International LLC was a joint venture investment
between FMC Technologies and a subsidiary of MODEC, Inc. The joint venture agreement gave us the right to convert our ownership beginning in
2004. MODEC International LLC was part of the Energy Production Systems business segment. The gain on conversion of our interest in the joint
venture is not included in our measure of segment operating profit.
Outlook for 2005
We are anticipating continued growth in our earnings per share in 2005. We expect 2005 growth to be driven by our Energy Systems businesses,
and anticipate that FoodTech and Airport Systems will perform at a level that is equal to or slightly higher than their full-year 2004 results. We
currently estimate that our full year 2005 diluted earnings per share will be within the range of $1.30 to $1.50. This estimate does not include the
impact, if any, of changes in foreign dividend repatriation under the provisions of the American Jobs Creation Act of 2004.
2003 Compared With 2002
Our total revenue for fiscal year 2003 increased by $235.6 million, or 11%, to $2.3 billion. Higher sales attributable to Energy Production Systems
represented the majority of the revenue increase. Two-thirds of this business segment’s growth in 2003 was from the increase in sales of subsea
systems, reflecting the continued trend toward offshore development of deepwater oil and gas fields. Energy Processing Systems and FoodTech
also contributed to the increase compared with 2002. A decrease in Airport Systems sales partially offset these increases in revenue. The growth
in total 2003 revenue included the favorable impact of changes in foreign currency translation which accounted for $98.5 million or 42% of the
total increase.
For the year ended December 31, 2003, cost of sales and services was $1,843.6 million, an increase of 11% compared with 2002. On a
consolidated basis, cost of sales and services as a percentage of total revenue remained consistent with 2002 results at 79.9%. During 2003 we
incurred an incremental $3.4 million in restructuring and asset impairment charges compared to 2002, which were offset by cost reductions,
resulting in comparable margins.
45 Management’s Discussion and Analysis
For the year ended December 31, 2003, selling, general and administrative expense increased $37.8 million, or 13.8%, compared to the year
ended December 31, 2002. Unfavorable changes in foreign currency exchange rates increased these expenses by approximately $10.0 million.
The remaining increase reflects higher staffing, travel and compensation costs related to increased business activity, especially within the Energy
Production Systems business segment. In 2003, selling, general and administrative expense as a percentage of sales was consistent with 2002
results.
Pre-tax income in 2003 increased to $95.6 million ($68.9 million after tax), from 2002 pre-tax income of $80.0 million ($57.8 million after tax) before
the cumulative effect of a change in accounting principle. The $15.6 million increase in 2003 pre-tax income was primarily attributable to higher
segment operating profit and, to a lesser extent, lower net interest expense, partially offset by an increase in other expense, net.
Changes in Accounting Principles
Employee Stock-Based Compensation Expense
On January 1, 2004, we began accounting for employee stock option compensation expense using the fair value method in accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” using the retroactive restatement
method of transition available under SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.”
The following tables provide the effect of the restatement on our consolidated balance sheets and consolidated statements of income:
Consolidated Balance Sheets
As of December 31,
2003 2002 2001
(In millions) PPreviously
reported
As
restated
Previously
reported
As
restated
Previously
reported
As
restated
Capital in excess of par value of
common stock $ 548.7 $ 580.5 $ 538.6 $ 560.0 $ 523.0 $ 534.3
Retained earnings (accumulated
deficit) $ (11.8 ) $ (29.6 ) $ (87.4 ) $ (98.5 ) $ 42.3 $ 37.5
Deferred income tax assets $ 64.2 $ 78.2 $ 74.6 $ 84.9 $ 15.4 $ 21.9
Consolidated Statements of Income
Year Ended Year Ended
December 31, 2003 December 31, 2002
(In millions, except per share data) Previously reported As restated Previously reported As restated
Net income (loss) $ 75.6 $ 68.9 $(129.7 ) $(136.0 )
Basic earnings (loss) per share $ 1.14 $ 1.04 $ (1.99 ) $ (2.08 )
Diluted earnings (loss) per share $ 1.13 $ 1.03 $ (1.94 ) $ (2.03 )
In the 2004 incentive compensation award, stock options represented 1/3 of the total stock-based award value. In prior years, stock options
represented approximately 2/3 of the total. The effect of this change was a reduction in expense related to stock options offset by an increase in
expense related to other types of stock-based compensation. Additionally, in 2004, our stock-based compensation expense relating to stock
options is lower than previous levels due to the vesting in 2003 of larger than normal stock option grants that were issued in 2001 concurrent with
our initial public offering and the absence of executive officer stock option grants in 2002.
The following is a summary of the components of stock-based compensation expense included in our results:
(In millions, before the effect of income taxes) YYear Ended December 31,
2004 2003 2002
Stock option compensation expense $ 5.0 $11.0 $10.3
All other stock-based compensation expense 7.3 4.2 5.7
Total stock-based compensation expense $12.3 $15.2 $16.0
Management’s Discussion and Analysis 46
Cumulative Effect of an Accounting Change in 2002--Goodwill and Other Intangible AssetsOn January 1, 2002, we adopted the provisions of SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible
Assets.” The standards collectively provide for the recognition, amortization and continuing valuation of goodwill and other intangible assets
acquired in a business combination. We completed the goodwill impairment testing that is required upon adoption of SFAS No. 142 during the first
quarter of 2002. The adoption of SFAS No. 142 on January 1, 2002, resulted in a loss from the cumulative effect of a change in accounting
principle of $193.8 million, net of an income tax benefit of $21.2 million, affecting the FoodTech business segment ($117.4 million before taxes;
$98.3 million after tax) and the Energy Processing Systems business segment ($97.6 million before taxes; $95.5 million after tax). This loss was not
the result of a change in the outlook of the businesses but was due to a change in the method of measuring goodwill impairment as required by
the adoption of SFAS No. 142. The impact of adopting the provisions of SFAS No. 142 relating to goodwill amortization resulted in our
discontinuing the amortization of goodwill beginning January 1, 2002.
Operating Results of Business Segments Segment operating profit is defined as total segment revenue less segment operating expenses. The following items have been excluded in
computing segment operating profit: corporate staff expense, interest income and expense associated with corporate debt facilities and
investments, income taxes and other expense, net.
47 Management’s Discussion and Analysis
The following table summarizes our operating results for the years ended December 31, 2004, 2003 and 2002:
($ in millions) Year Ended December 31, Favorable/(Unfavorable)
2004 2003 2002 2004 vs. 2003 2003 vs. 2002
Revenue
Energy Production Systems $1,487.8 $ 1,136.2 $ 940.3 $ 351.6 31% $195.9 21%
Energy Processing Systems 493.3 431.7 395.9 61.6 14 35.8 9
Intercompany eliminations (10.7 ) (2.8 ) (1.4 ) (7.9 ) * (1.4) *
Subtotal Energy Systems 1,970.4 1,565.1 1,334.8 405.3 26 230.3 17
FoodTech 525.8 524.7 496.9 1.1 0 27.8 6
Airport Systems 279.8 224.1 245.1 55.7 25 (21.0) (9)
Intercompany eliminations (8.3) (6.8 ) (5.3 ) (1.5) * (1.5 ) *
Total revenue $2,767.7 $2,307.1 $2,071.5 $ 460.6 20% $235.6 11%
Net income (loss)
Segment operating profit
Energy Production Systems $ 71.1 $ 66.0 $ 50.4 $ 5.1 8% $ 15.6 31%
Energy Processing Systems (1) 27.4 30.3 27.1 (2.9 ) (10) 3.2 12
Subtotal Energy Systems 98.5 96.3 77.5 2.2 2 18.8 24
FoodTech 36.8 44.0 43.3 (7.2) (16) 0.7 2
Airport Systems 16.0 12.4 15.8 3.6 29 (3.4 ) (22)
Total segment operating profit 151.3 152.7 136.6 (1.4) (1) 16.1 12
Corporate items
Gain on conversion of investment
in MODEC International LLC 60.4 - - 60.4 * - -
Corporate expense (28.3) (24.3) (23.2) (4.0) (16) (1.1) (5)
Other expense, net (17.5) (23.9) (20.9) 6.4 27 (3.0) (14)
Net interest expense (6.9 ) (8.9 ) (12.5 ) 2.0 22 3.6 29
Total corporate items 7.7 (57.1) (56.6) 64.8 113 (0.5) (1)
Income before income taxes and
the cumulative effect of an
accounting change 159.0 95.6 80.0 63.4 66 15.6 20
Provision for income taxes (42.3 ) (26.7 ) (22.2 ) (15.6) (58) (4.5) (20)
Income before the cumulative
effect of an accounting change 116.7 68.9 57.8 47.8 69 11.1 19
Cumulative effect of accounting
change, net of income taxes - - (193.8) - * 193.8 *
Net income (loss) $ 116.7 $ 68.9 $ (136.0 ) $ 47.8 69% $204.9 *
(1) Energy Processing Systems operating profit in 2004 included a goodwill impairment charge of $6.5 million.
* Not meaningful
Management’s Discussion and Analysis 48
Energy Production Systems
2004 Compared With 2003
Energy Production Systems’ revenue was higher in 2004 than in the same period in 2003, with growth in subsea systems, floating production
systems and, to a lesser extent, the surface business. Revenue from sales of subsea systems of $1.0 billion in 2004 increased $198 million, or
24%, from $817 million in 2003, of which $148 million related to higher volumes and $50 million to the favorable impact of foreign currency
translation. Subsea volumes increased primarily as a result of new and ongoing projects located offshore Brazil, the North Sea, Asia Pacific and
offshore West Africa, partially offset by a reduction in projects in the Gulf of Mexico. Floating production systems’ revenues grew by $122 million
over the same period in the prior year. This was primarily attributable to higher revenue associated with the Sonatrach project, which increased
$95 million to a total of $149 million in 2004.
Energy Production Systems’ 2004 operating profit increased compared with 2003, with higher volumes and favorable margins in our subsea and
surface businesses more than offsetting the impact of higher selling, general and administrative expense and period costs related to the Sonatrach
project. Operating profit from subsea systems grew 46% from 2003 as a result of higher sales volumes and improved margins. The increase in
subsea systems was offset by a decline in operating profit at our floating production systems business compared to 2003, which was primarily the
result of $21.4 million in pre-tax provisions recorded for anticipated losses on the Sonatrach project. To a lesser extent, Energy Production
Systems’ operating profit increased as a result of higher sales volumes and margins in the surface business. Selling, general and administrative
expense were higher in 2004 compared to the prior year, attributable to increased bid and proposal costs and variable selling expenses, such as
commissions.
The Sonatrach contract with the floating production systems division involves the supply of a petroleum loading system. In early 2004, the size of
this contract was reduced from $240 million to $224 million, and uncertainty was removed from the contract’s scope and schedule; however, from
a profit perspective, we expected to break even. In July 2004, a second amendment to the contract increased the project size to $253 million.
Also, during the third quarter, we recognized a $4.4 million (pre-tax) provision for anticipated losses due to an increase in the estimate of our total
project costs. In November 2004, severe storms in Algeria delayed completion of the pipeline installation phase of the project. As a result of these
storms, we recorded an additional provision for anticipated losses amounting to $17.0 million (pre-tax). At December 31, 2004, the project was
approximately 80% complete.
2003 Compared With 2002
Energy Production Systems’ revenue was higher in 2003 than the same period in 2002, reflecting increases in subsea systems, the surface
business and floating production systems. Revenue from sales of subsea systems of $817 million in 2003 grew $136 million, or 20%, from $681
million in 2002, of which $85 million related to higher volumes and $51 million to the favorable impact of foreign currency translation. The higher
sales volumes in subsea systems were attributable primarily to projects located in the North Sea, Gulf of Mexico and, to a lesser extent, offshore
Brazil. In the surface business, revenues increased by $37 million in 2003 over the same period in the prior year reflecting increased deliveries of
land-based systems in North America and offshore systems outside of the U.S. Revenues in 2003 also reflected an increase for floating production
systems of $19 million, primarily resulting from the Sonatrach project, and a partial year benefit of $8 million from the acquisition of CDS
Engineering (“CDS”).
Energy Production Systems’ 2003 operating profit growth compared with 2002 was a result of the subsea systems and surface businesses, as
operating profit increased by $13 million and $4 million, respectively, as a result of higher sales volumes. Lower profit recorded by our floating
production systems business partially offset the improvements in subsea and surface. Depreciation and amortization expense increased in 2003,
attributable to capital expenditures made in prior periods to support increased subsea volumes and to increased amortization of intangible assets
related to the acquisition of CDS.
Outlook for 2005
For 2005, we are expecting another year of growth in operating profit in our Energy Production Systems business. This expectation is based on
our strong backlog of orders in subsea systems and forecasts of favorable market conditions, including the benefit from continued high oil and gas
prices and increased rig activity worldwide. In floating production systems, we expect Sonatrach sales volumes to decline and profitability to
improve as the project concludes in the third quarter of 2005. In our separation systems business, we continued integration activities in 2004, and
the business is expected to improve its sales and profitability in 2005.
49 Management’s Discussion and Analysis
Energy Processing Systems
2004 Compared With 2003
Energy Processing Systems’ revenue was higher in 2004 compared with 2003, with sales of measurement and material handling equipment
contributing $31 million and $22 million, respectively, to the increase. Strong demand for measurement equipment for pipeline and tank truck
applications was driven by the level of oil and gas prices, while higher sales of material handling equipment resulted primarily from increased
demand for the bulk conveying systems needed for coal fired power generation. In addition, the favorable impact of foreign currency translation
accounted for $12 million of the increase in segment revenue. Fluid control reported slightly higher revenue in 2004, as a $25 million increase in
sales reflecting WECO®/Chiksan® product demand was almost completely offset by a decrease in sales of production manifold systems, the latter
resulting from competitive pressure. The growth in sales of the WECO®/Chiksan® product line, which we sell mainly to service companies,
continued to reflect the impact of strong land based drilling activity in the U.S.
Energy Processing Systems’ operating profit was lower in 2004 compared with 2003, mainly as a result of a fourth quarter goodwill impairment
charge amounting to $6.5 million associated with the blending and transfer product line. Also contributing to lower segment operating profit was a
$3 million decrease in loading systems margins, reflecting competitive pressure and higher operating costs. The positive impact of higher volumes
on profitability in material handling and measurement equipment, which amounted to $4 million and $3 million, respectively, partially offset the
decrease in segment operating profit.
The 2004 goodwill impairment charge of $6.5 million ($6.1 million after tax) eliminated all remaining goodwill associated with the blending and
transfer business. We experienced a lack of inbound orders in the blending and transfer product line for a sustained period of time. This was due,
in part, to the volatility of oil and gas prices, which reduced the willingness of oil companies to invest capital to upgrade existing blending facilities
or to invest in new blending capacity.
2003 Compared With 2002
Compared to 2002, revenue for Energy Processing Systems increased as a result of higher sales volumes and favorable foreign currency
translation, which accounted for $25 million and $11 million, respectively, of the increase. The positive impact of higher volumes of
WECO®/Chiksan® equipment in our fluid control division reflected increased service company demand. Also, measurement equipment and loading
systems volumes were both higher in 2003, with measurement sales reflecting stronger demand for metering systems and loading systems
benefiting from increased activity in the liquefied natural gas (“LNG”) market.
Energy Processing Systems’ higher operating profit reflected the increased sales volumes in 2003, with the fluid control and measurement
divisions reporting increased operating profit of $4 million and $2 million, respectively. These increases in operating profit were partly offset by a
$2 million reduction in operating profit from material handling systems, primarily attributable to difficult market conditions. The improvement in
profitability for fluid control equipment, which resulted from the increased demand from service companies for the WECO®/Chiksan® products, was
partly offset by an increase in contract reserves associated with a production manifold system project. For loading systems, the favorable impact
of higher sales volumes on operating profit was largely offset by the effect of pricing pressure in the competitive LNG loading arm market.
Outlook for 2005
In 2005, we expect Energy Processing Systems to deliver overall growth in operating profit over 2004. We are projecting increased profitability in
our production manifold systems business along with improved performance from loading systems and measurement systems. In our fluid control
business, we expect demand for WECO®/Chiksan® equipment from service companies to be consistent with 2004 levels.
In the first quarter of 2005, we will begin a $3 million project to restructure our material handling systems product line. The purpose of this
restructuring program is to reduce costs through the outsourcing of work to suppliers and the shifting of work to other Energy Processing
Systems’ facilities to better leverage capacity. While this activity will negatively impact the first quarter of 2005, we believe the full-year impact will
not be significant.
Management’s Discussion and Analysis 50
FoodTech
2004 Compared With 2003
FoodTech revenue for 2004 was essentially flat compared with 2003. Higher volumes of freezing, portioning and cooking equipment in 2004 were
responsible for an increase of $21 million in revenue, reflecting stronger demand in the North American and Asian markets. In addition, year over
year changes in foreign currency translation resulted in a $19 million increase in revenue. These increases were largely offset by the $23 million
negative impact on revenue resulting from lower volumes of fruit and vegetable processing equipment, primarily reflecting a 2004 decline in the
global market for tomato processing equipment. To a lesser extent, the increase in FoodTech revenue was also offset by lower volumes of
canning and citrus systems and the impact on revenue of the divestiture of our U.S. agricultural harvester product line in the fourth quarter of
2003.
FoodTech’s operating profit was lower in 2004 compared with 2003, with a decrease of $4 million attributable to lower citrus volumes, and an
additional $4 million decrease resulting from lower volumes of other fruit and vegetable processing equipment. The decline in profitability was
partially offset by a $2 million increase in the freezing, portioning and cooking equipment businesses, primarily attributable to the positive impact of
reduced expenses.
2003 Compared With 2002
The increase in FoodTech’s revenue in 2003 primarily reflected a $40 million favorable effect of foreign currency translation compared with 2002,
largely attributable to the weakening of the U.S. dollar against the euro and the Swedish krona. Sales of cooking equipment in North America
contributed $12 million to the increase in revenue. Partially offsetting these favorable effects was a significant decrease in sales of freezing
equipment, reflecting competitive pressure in the North American market and a weaker European economy in 2003.
Compared with 2002, FoodTech’s 2003 operating profit increased, reflecting the positive impact of foreign currency translation of $4 million, net,
as the increase in revenue resulting from foreign currency translation was largely offset by the negative impact on profitability resulting from
translation of the corresponding expenses. In addition, a $1.4 million favorable adjustment relating to foreign sales taxes in 2003 contributed to
the increase in operating profit. These increases in operating profit were largely offset by the unfavorable impact resulting from lower sales
volumes of freezing equipment, and the impact of lower citrus margins, reflecting competitive pressures.
Because our U.S. agricultural harvester product line no longer fit the strategic initiatives of our FoodTech business, we divested the product line in
2003, resulting in a pre-tax loss of $1.2 million.
Outlook for 2005
Our FoodTech business performance is expected to be essentially level with 2004 results. We anticipate an increase in profitability from food
processing equipment, primarily related to sterilizer and canning equipment, and from the freezer and food handling product lines. The increase in
profitability is expected to be offset by lower citrus results, attributable in large part to the impact of the 2004 hurricane damage on the Florida
citrus crop.
Airport Systems
2004 Compared With 2003
Airport Systems’ revenue increased in 2004 compared with 2003. Higher revenues from sales of Jetway® passenger boarding bridges and
ground support equipment each represented $26 million of the increase. Stronger sales of Jetway® passenger boarding bridges reflected
increased deliveries to domestic airlines and, to a lesser extent, airport authorities. Ground support equipment revenue increased as a result of
higher sales to ground handlers and cargo handling companies, primarily in North America, and the positive impact of foreign currency translation
of $3 million. Airport Services sales grew by $7 million over the same period in the prior year due to new projects in the Dallas and Los Angeles
airports. These increases were partially offset by the $7 million decrease in Halvorsen loader revenue, as deliveries decreased from 91 units in
2003 to 70 units in 2004. Sales of Halvorsen loaders fluctuate based on the status of government approval of funding and the requirements of the
U.S. Air Force.
Airport Systems’ operating profit in 2004 increased compared with 2003, primarily attributable to the volume increases in Jetway® and ground
support equipment, which contributed to $5 million in incremental operating profit for the year. Reduced volume in Halvorsen loaders caused a $3
million decrease in operating profit for 2004.
2003 Compared With 2002
Airport Systems’ revenue decreased in 2003 compared with 2002 as weak demand from commercial airlines and airport municipalities continued
to negatively affect Airport Systems in 2003. Sales of Jetway® passenger boarding bridges and Halvorsen loaders were lower compared with
2002 by $20 million and $17 million, respectively, the latter reflecting a lower level of deliveries to the U.S. Air Force. Halvorsen loader deliveries
decreased from 133 units in 2002 to 91 units in 2003. Increased sales of automated guided vehicle systems of $13 million and the positive impact
of foreign currency translation of $7 million partially offset the decrease in revenue from the same period in 2002.
Airport Systems’ operating profit in 2003 decreased compared with 2002, primarily due to lower volumes of Halvorsen loaders, which contributed
to a $5 million decline in operating profit, partially offset by an improvement in profitability of $2 million from our ground support equipment
51 Management’s Discussion and Analysis
business. The negative impact of the Jetway® business’ lower volumes in 2003 was partially offset by higher margins, reflecting the benefit of cost
cutting initiatives implemented in prior periods, resulting in a net decline in operating profit of $1 million from the same period in 2002.
Outlook for 2005We are projecting operating profit at Airport Systems to be up slightly in 2005. World airline passenger traffic is anticipated to grow at
approximately 6% in 2005. However, the traditional major airlines continue to suffer the challenges of higher fuel costs, low airfares and high labor
costs, which are delaying the industry’s recovery. While we have received an order for Halvorsen loaders for 2005 delivery, the total Halvorsen
loader volume of 40 units in 2005 is lower than 2004 volume. We expect our commercial businesses, principally the ground support equipment
business, to offset the impact of the forecasted decline in Halvorsen loader shipments.
Inbound Orders and Order Backlog
Inbound orders represent the estimated sales value of confirmed customer orders received during the reporting period.
(In millions)
Inbound orders
Year Ended December 31,
2004 2003
Energy Production Systems $ 1,829.8 $ 1,194.3
Energy Processing Systems 460.9 458.9
Intercompany eliminations (6.3 ) (8.3 )
Subtotal Energy Systems 2,284.4 1,644.9
FoodTech 550.9 535.1
Airport Systems 270.0 241.7
Intercompany eliminations (9.0 ) (6.7 )
Total inbound orders $ 3,096.3 $ 2,415.0
Order backlog is calculated as the estimated sales value of unfilled, confirmed customer orders at the reporting date.
(In millions)
Order backlog
December 31,
2004 2003
Energy Production Systems $1,222.7 $ 880.7
Energy Processing Systems 104.8 137.2
Intercompany eliminations (1.0 ) (5.4 )
Subtotal Energy Systems 1,326.5 1,012.5
FoodTech 142.7 117.6
Airport Systems 119.8 129.5
Intercompany eliminations (1.9 ) (1.2 )
Total order backlog $1,587.1 $1,258.4
The portion of total order backlog at December 31, 2004, that we project will be recorded as revenue after fiscal year 2005 amounts to
approximately $261.0 million.
Higher order backlog for Energy Production Systems at December 31, 2004, was primarily attributable to orders received for subsea systems in
full year 2004 of $1.5 billion, including significant projects for Norsk Hydro, Statoil, BP and Total. Order backlog for surface systems was higher
compared with the prior year as a result of favorable market conditions, including higher gas and oil prices. Order backlog for floating production
systems declined as the Sonatrach project neared its 2005 completion.
Energy Processing Systems’ order backlog at December 31, 2004 decreased compared to December 31, 2003. The unfavorable comparison
related primarily to material handling systems, which had $22 million in order backlog at year end 2003 relating to a coal fired power generation
bulk conveying system. To a lesser extent, lower order backlog was also attributable to loading systems and measurement equipment, the latter
the result of 2004 shipments of metering systems outpacing inbound orders, reducing year end order backlog.
FoodTech’s order backlog at December 31, 2004, was higher compared with December 31, 2003, primarily attributable to higher order backlog
for canning and freezing equipment. The increase was partially offset by order backlog for food handling equipment, which was lower at December
31, 2004, compared with the prior year.
Management’s Discussion and Analysis 52
Airport Systems’ order backlog at December 31, 2004, declined compared with the prior year as a result of a reduction in the order backlog for
Halvorsen loaders. In addition, several large automated material handling projects, which were included in order backlog at year end 2003, were
nearing completion at December 31, 2004. These decreases were partially offset by higher backlog in airport services.
Corporate ItemsGain on Conversion of Investment in MODEC International LLC
MODEC International LLC was a joint venture between FMC Technologies and a subsidiary of MODEC, Inc. We had a 37.5% interest in the joint
venture, which was a supplier of floating production offloading systems and other offshore installations such as tension leg platforms.
In 2004, we elected to convert our interest in MODEC International LLC as provided for in the joint venture agreement. The terms of that
agreement gave us the right to exchange our joint venture interest for proceeds based on the relative contribution of the operating results of the
joint venture to the income of MODEC, Inc. for the preceding two fiscal years. At MODEC, Inc.’s option, the proceeds could consist of cash or
shares of common stock of MODEC, Inc., or a combination thereof.
In November 2004, we received proceeds from MODEC, Inc. of $77.0 million in exchange for our interest in MODEC International LLC and
recorded a gain of $60.4 million ($36.1 million after tax). The proceeds consisted of 3.0 billion yen, or $27.9 million, and 2.6 million common
shares of MODEC, Inc., representing 7.6% of MODEC, Inc., valued at $49.1 million. At December 31, 2004, the fair value of this investment was
$59.2 million. There is a risk that we will be unable to fully realize our investment in MODEC, Inc., due to its potential--even likely-- illiquidity.
Corporate Expense
Corporate expense in 2004 was higher when compared with the prior year, due primarily to higher Sarbanes-Oxley compliance costs. In 2003,
corporate expense increased slightly over 2002, primarily due to higher insurance premiums.
In 2005, we anticipate that corporate expense will be essentially level with or slightly less than it was in 2004.
Other Expense, Net
Other expense, net, consists primarily of stock-based compensation, LIFO inventory adjustments, expenses related to pension and other
employee postretirement benefits (excluding service costs, which are reflected in segment operating results), foreign currency-related gains and
losses, and other items not associated with a particular business segment. Stock-based compensation expense includes the recognition of the
fair value of stock-based awards over the vesting period. In 2004, we began recording expense for stock options in accordance with SFAS No.
123, and our prior period results have been restated to reflect this change.
The decrease in other expense, net, from the prior year is attributable to $3 million in lower stock-based compensation expense, $3 million in
reduced costs related to our outsourcing of employee benefits administration and $2 million in favorable changes in foreign currency hedging
results. These declines were partially offset by a $2 million increase in pension expense caused by lower discount rate and asset return
assumptions.
Other expense, net, was higher in 2003 than 2002 largely due to higher pension expense of $3 million and the absence of a 2002 gain of $1
million on the sale of the corporate aircraft.
We anticipate that other expense, net, will increase in 2005, largely due to higher expenses related to stock-based compensation and LIFO
inventory.
Net Interest Expense
Net interest expense is comprised of interest expense related to external debt financing less interest income earned on cash equivalents and
marketable securities. When compared with the prior year, net interest expense decreased in 2004, primarily attributable to lower average debt
levels. In 2003, net interest expense was lower compared with 2002, reflecting lower average debt levels as well as lower interest rates during
2003. In 2003, lower interest rates were partly attributable to our use of commercial paper as a short-term funding source beginning in the first
quarter of 2003 as well as the maturity in 2003 of interest rate swaps which held higher fixed interest rates.
We obtained interest rate swaps in the second quarter of 2003 that fix the effective annual interest rate on $150.0 million of our commercial paper
at an average all-in rate of 2.9%. These interest rate swaps mature in June 2008.
We expect net interest expense for full-year 2005 to be lower than 2004 due to lower average debt levels.
Income Tax Expense
Income tax expense for the year ended December 31, 2004, resulted in an effective tax rate of 27%. An effective tax rate of 28% was realized in
2003 and 2002. In 2004, we realized tax benefits related to the settlement of a tax dispute with FMC Corporation and the closure of several tax
audits.
Income tax expense in 2003 and 2002 was restated in connection with the 2004 change in accounting for stock-based compensation, which we
chose to apply retroactively. This restatement resulted in a reduction of income tax expense of $4.3 million and $4.0 million in 2003 and 2002,
respectively.
53 Management’s Discussion and Analysis
The differences between the effective tax rates for these years and the statutory U.S. federal income tax rate relate primarily to differing foreign tax
rates, taxes on intercompany dividends and deemed dividends for tax purposes, the settlement of the tax dispute and audits, and non-deductible
expenses.
For full-year 2005, we currently anticipate our effective income tax rate to average just over 27%. We have not quantified the impact, if any, of
changes in foreign dividend repatriation under the provisions of the American Jobs Creation Act of 2004, which was signed into law on October
22, 2004.
Liquidity and Capital Resources
At December 31, 2004, our net debt was $39.0 million, compared with net debt of $192.5 million at December 31, 2003. Net debt includes short
and long-term debt and the current portion of long-term debt, net of cash and cash equivalents. We reduced our net debt during 2004 with cash
provided by operating activities and proceeds from the issuance of common stock upon the exercise of employee stock options of $38.6 million.
We also received cash of $27.9 million in connection with the conversion of our interest in MODEC International LLC.
We utilized cash in 2004 to fund $50.2 million in capital expenditures, repay $58.4 million of outstanding debt and contribute $44.2 million to our
pension plans.
Cash flows for each of the years in the three-year period ended December 31, 2004, were as follows:
(In millions) Year Ended December 31,
2004 2003 2002
Cash provided by operating activities of continuing operations $ 132.9 $ 150.4 $ 119.0
Cash required by discontinued operations (5.9) (5.2) (5.3)
Cash required by investing activities (16.6) (132.8) (66.4)
Cash required by financing activities (19.2) (13.3) (43.5)
Effect of exchange rate changes on cash and cash equivalents 3.9 (2.5 ) 0.6
Increase (decrease) in cash and cash equivalents $ 95.1 $ (3.4 ) $ 4.4
Operating Cash Flows
Cash provided by operating activities of continuing operations for the year ended December 31, 2004 was lower compared with the same period
in 2003 as a result of higher working capital requirements during 2004 for our long-term contracts. Cash payments for inventory grew by $31.2
million over the prior year, primarily in the Energy Production Systems segment. Cash flows from accounts receivable and advance payments
were lower than the prior year by $15.5 million and $40.7 million, respectively, as a result of higher sales volumes and the timing of customer
payments. These uses of cash were partially offset by higher balances of accounts payable and accrued and other liabilities, which provided
$35.7 million and $43.5 million, respectively, of incremental operating cash flow in 2004. The accounts payable and other liabilities balances grew
as a result of higher spending driven by increasing sales volumes. During 2004, we contributed $44.2 million to our pension plans compared to
$25.2 million in the prior year. The entire 2004 contribution to our domestic qualified pension plan of $30 million was discretionary.
Compared with the same period in 2002, the increase in cash provided by operating activities of continuing operations for the year ended
December 31, 2003 reflected an increase of $11.1 million in net income. Additionally, changes in working capital requirements resulted in net cash
inflows of $15.6 million. The changes in working capital requirements included an increase in cash from advance payments primarily from our
Energy Production Systems customers partially offset by the impact of higher accounts receivable balances in 2003.
Cash Required by Discontinued Operations
Cash required by discontinued operations in 2004 was relatively flat compared with 2003 and 2002. These cash outflows represent payments for
claims, claims administration and insurance coverage for product liabilities associated with equipment which had been manufactured by our
discontinued businesses.
Investing Cash Flows
Cash required by investing activities decreased by $116.2 million in 2004 compared to 2003. Higher cash outflows in 2003 were principally due to
the $44.2 million outflow for the CDS acquisition and the retirement of $35.9 million of sale-leaseback obligations. The decrease in cash required
by investing activities is also attributable to the $27.9 million cash inflow from the conversion of our interest in MODEC International LLC in 2004,
as well as a $15.0 million reduction in capital expenditures.
Compared to 2002, the increase in cash required by investing activities in 2003 reflected cash paid for a majority ownership interest in CDS. Also
in 2003, we retired sale-leaseback obligations and replaced them with lower cost balance sheet debt. In 2002, investing cash flows reflected the
retirement of sale-leaseback obligations relating to our corporate aircraft, offset by proceeds from its subsequent sale.
Management’s Discussion and Analysis 54
Financing Cash FlowsCash required by financing activities increased slightly in 2004. We made payments on our outstanding debt obligations of $58.4 million compared
to net payments of $20.3 million during 2003. We received $38.6 million in proceeds from the issuance of 2.3 million shares of common stock
upon the exercise of vested employee stock options in 2004, which was a $31.1 million increase from the prior year amount. As of December 31,
2004, 2.4 million vested stock options remained outstanding, all of which had exercise prices that were less than the closing price of our stock on
December 31, 2004.
During 2003, our financing cash flows reflected the repayment of $170.3 million of short and long-term debt, which was replaced with borrowings
of $150.0 million under our newly established commercial paper program. This shift allowed us to substantially lower the interest cost on our debt.
In the second quarter of 2003, we entered into interest rate swaps that fixed the effective annual interest rate on $150.0 million of our commercial
paper at an average all-in rate of 2.9% for five years.
Debt and Liquidity
Total borrowings at December 31, 2004 and 2003, comprised the following:
(In millions) December 31,
2004 2003
Commercial paper $ 149.8 $ 150.0
Five-year revolving credit facilities - 50.0
Uncommitted credit facilities 2.2 5.1
Borrowings from MODEC International LLC (joint venture) - 15.2
Property financing 9.9 -
Other 1.2 1.2
Total borrowings $ 163.1 $ 221.5
Our committed five-year revolving credit facilities provide the ability to refinance our commercial paper obligations on a long-term basis; therefore,
at December 31, 2004 and 2003, we classified our commercial paper as long-term on our consolidated balance sheets.
Under the commercial paper program, and subject to available capacity under our committed revolving credit facilities, we have the ability to
access up to $400.0 million of short-term financing through our commercial paper dealers. Standard & Poor’s Ratings Services and Moody’s
Investor Services assigned their “A-2” and Prime-2 (“P-2”) commercial paper ratings, respectively, to our program. Standard & Poor’s Ratings
Services defines an A-2 rating as follows, “A short-term obligation rated ‘A-2’ is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rating categories (A-1). However, the obligor’s capacity to meet its financial
commitment on the obligation is satisfactory.” Moody’s Investor Services defines their “P-2” rating as follows, “Issuers rated Prime-2 have a
strong ability to repay senior short-term debt obligations.” Both agencies have just one rating category that is higher than ours--for Standard &
Poor’s Ratings Services, this category is A-1 and for Moody’s Investor Services, it is P-1.
We have interest rate swaps related to $150.0 million of our commercial paper borrowings. The effect of these interest rate swaps, which mature
in June 2008, is to fix the effective annual interest rate on these borrowings at 2.9%.
55 Management’s Discussion and Analysis
The following is a summary of our credit facilities at December 31, 2004:
(In millions)
Description
Commitment
amount
Debt
outstanding
Commercial paper
outstanding
(a)
Letters of
credit
(b)
Unused
capacity Maturity
Five-year revolving credit facility $ 250.0 $ - $ 149.8 $ 8.2 $ 92.0 April 2006
Five-year revolving credit facility 250.0 - - 7.8 242.2 ((c) April 2009
$ 500.0 $ - $ 149.8 $ 16.0 $ 334.2 (d)
(a) Our available capacity under our revolving credit facilities is reduced by any outstanding commercial paper.
(b) The five-year revolving credit facilities allow us to obtain a total of $250.0 million in standby letters of credit. Our available capacity is
reduced by any outstanding letters of credit associated with these facilities.
(c) In April 2004, we obtained this credit facility, which replaced a 364-day $150.0 million revolving credit facility upon maturity.
(d) The outstanding balance of commercial paper combined with the debt outstanding under the revolving credit facilities and the amount in
standby letters of credit is limited to $500.0 million.
Among other restrictions, the terms of the committed credit agreements include negative covenants related to liens and financial covenants related
to consolidated tangible net worth, debt to earnings ratios and interest coverage ratios. We are in compliance with all debt covenants as of
December 31, 2004. Our five-year revolving credit facility maturing April 2006 carries an effective annual interest rate of 100 basis points above the
one-month London Interbank Offered Rate (“LIBOR”). The five-year revolving credit facility maturing April 2009 carries an effective annual interest
rate of 87.5 basis points above the one-month LIBOR.
We had no borrowings outstanding under our five-year $250.0 million revolving credit facilities at December 31, 2004 and $50.0 million
outstanding at December 31, 2003. At December 31, 2003, we had an interest rate swap agreement that matured in June 2004 related to $50.0
million of the long-term borrowings that fixed the interest rate thereon at 5.92%. During the second quarter of 2004, we repaid the revolving credit
facility borrowings, partly with proceeds from our commercial paper program, and the interest rate swap agreement matured.
Our uncommitted credit includes domestic money-market facilities and international lines of credit. Borrowings under these uncommitted facilities
totaled $2.2 million and $5.1 million at December 31, 2004 and 2003, respectively.
Prior to its cancellation in October 2004, we also had an uncommitted credit agreement with MODEC International LLC, a 37.5%-owned joint
venture, whereby MODEC International LLC loaned its excess cash to us. Under the terms of the credit agreement, the interest rate was based on
the monthly weighted-average interest rate we pay on our domestic credit facilities and commercial paper, which was 1.3% at December 31,
2003. Borrowings from MODEC International LLC amounted to $15.2 million at December 31, 2003.
We entered into a sale-leaseback agreement during the third quarter of 2004. We sold a building for $9.7 million in net proceeds, which were used
to reduce other balance sheet debt. We are accounting for the transaction as a financing and are amortizing the obligation using an effective
annual interest rate of 5.37% over the lease term of ten years. Our annual payments associated with this obligation total $0.9 million.
Other domestic and international borrowings totaled $1.2 million at both December 31, 2004 and 2003.
Outlook for 2005
We are authorized to repurchase up to two million shares of common stock. We have announced plans to begin the repurchase of shares of our
outstanding common stock during 2005. The timing and amount of repurchases will depend on market conditions.
We plan to meet our cash requirements in 2005 with cash generated from operations, our available credit facilities and commercial paper.
In 2005, we expect to pay previously accrued income taxes of approximately $27 million, primarily due to the completion of significant subsea
projects in Norway. We included this obligation on our consolidated balance sheet in current income taxes payable at December 31, 2004 and in
current deferred income taxes at December 31, 2003.
For 2005, we estimate capital expenditures will be in the range of $65-$70 million, compared with 2004 capital spending of approximately $50
million. The anticipated increase in the level of capital spending is partly attributable to expenditures planned in Malaysia and Angola by Energy
Production Systems to support our subsea business.
Management’s Discussion and Analysis 56
We expect to fund approximately $25 million to our pension plans, a substantial portion of which will be made at management’s discretion. We
will make a discretionary contribution of $15 million to our domestic qualified pension plan. Using our current assumptions, we will not have a
minimum funding requirement on the domestic qualified pension plan until 2013.
We continue to evaluate acquisitions, divestitures and joint ventures in the ordinary course of business.
Contractual Obligations and Off-Balance Sheet Arrangements
The following is a summary of our contractual obligations at December 31, 2004:
(In millions) Payments due by period
Contractual obligationsTotal
payments
Less than 1
year
1 - 3
years
3 – 5
years
After 5
years
Long-term debt (a) $ 160.9 $ 0.5 $ 1.0 $ 150.7 $ 8.7
Short-term debt 2.2 2.2 - - -
Capital lease obligations 0.3 0.1 0.1 0.1 -
Operating leases 129.9 28.5 38.8 29.5 33.1
Unconditional purchase obligations (b) 470.9 356.6 83.6 30.7 -
Acquisition-related obligations (c) 1.0 1.0 - - -
Total contractual obligations $ 765.2 $ 388.9 $ 123.5 $ 211.0 $ 41.8
(a) Our available long-term debt is dependent upon our compliance with debt covenants, including negative covenants related to liens, and
financial covenants related to consolidated tangible net worth, debt to earnings and interest coverage ratios. We were in compliance
with all covenants at December 31, 2004; however, any violation of debt covenants, event of default, or change in our credit rating
could have a material impact on our ability to maintain our committed financing arrangements.
(b) In the normal course of business, we enter into agreements with our suppliers to purchase raw materials or services. These agreements
include a requirement that our supplier provide products or services to our specifications and require us to make a firm purchase
commitment to our supplier. As substantially all of these commitments are associated with purchases made to fulfill our customers’
orders, the costs associated with these agreements will ultimately be reflected in cost of sales and services on our consolidated
statements of income.
(c) Acquisition-related obligations include the remaining amount owed associated with the 2003 acquisition of the RampSnake® product
line. In addition, we also have a commitment to acquire the remaining ownership interest in CDS in 2009 at a purchase price of slightly
less than 6.5 times the average of 45% of CDS’ 2007 and 2008 earnings before interest expense, income taxes, depreciation and
amortization. At the current time, we are unable to estimate the amount of this commitment.
57 Management’s Discussion and Analysis
The following is a summary of other off-balance sheet arrangements at December 31, 2004:
(In millions) Amount of commitment expiration per period
Other off-balance sheet arrangements
Total
amount
Less than 1
year
1 - 3
years
3- 5
years
After 5
years
Letters of credit and bank guarantees $ 356.7 $ 159.2 $ 91.8 $ 41.0 $ 64.7
Surety bonds 135.7 96.3 39.4 - -
Third-party guarantees 2.1 0.1 2.0 - -
Total other off-balance sheet
arrangements $ 494.5 $ 255.6 $ 133.2 $ 41.0 $ 64.7
As collateral for our performance on certain sales contracts or as part of our agreements with insurance companies, we are contingently liable
under letters of credit, surety bonds and other bank guarantees. In order to obtain these financial instruments, we pay fees to various financial
institutions in amounts competitively determined in the marketplace. Our ability to generate revenue from certain contracts is dependent upon our
ability to obtain these off-balance sheet financial instruments. These off-balance sheet financial instruments may be renewed, revised or released
based on changes in the underlying commitment. Historically, our commercial commitments have not been drawn upon to a material extent;
consequently, management believes it is not likely that there will be claims against these commitments that will have a negative impact on our key
financial ratios or our ability to obtain financing.
Qualitative and Quantitative Disclosures about Market RiskWe are subject to financial market risks, including fluctuations in foreign currency exchange rates, interest rates and certain equity prices. In order
to manage and mitigate our exposure to these risks, we may use derivative financial instruments in accordance with established policies and
procedures. We do not use derivative financial instruments where the objective is to generate profits solely from trading activities. At December 31,
2004 and 2003, our derivative holdings consisted of foreign currency forward contracts and interest rate swap agreements.
These forward-looking disclosures only address potential impacts from market risks as they affect our financial instruments. They do not include
other potential effects which could impact our business as a result of changes in foreign currency exchange rates, interest rates, commodity prices
or equity prices.
Foreign Currency Exchange Rate Risk
When we sell or purchase products or services, transactions are frequently denominated in currencies other than the particular operation’s
functional currency. Generally, we do not use financial instruments to hedge local currency transactions if a natural hedge exists, whereby
purchases and sales in the same foreign currency and with similar maturity dates offset one another. When natural hedges are not available, we
may enter into foreign exchange forward contracts with third parties. Our hedging policy is designed to reduce the impact of foreign currency
exchange rate movements, and we expect any gain or loss in the hedging portfolio to be offset by a corresponding gain or loss in the underlying
exposure being hedged.
We hedge our net recognized foreign currency assets and liabilities to reduce the risk that our earnings and cash flows will be adversely affected
by changes in the foreign currency exchange rates. We also hedge firmly committed, anticipated transactions in the normal course of business.
The majority of these instruments mature during 2005.
We use a sensitivity analysis to measure the impact on derivative instrument fair values of an immediate 10% adverse movement in the foreign
currency exchange rates. This calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar and all
other variables are held constant. We expect that changes in the fair value of derivative instruments will offset the changes in fair value of the
underlying assets and liabilities on the balance sheet. To the extent that our derivative instruments are hedging anticipated transactions, a 10%
decrease in the value of the U.S. dollar would result in a decrease of $5.0 million in the net fair value of our derivative financial instruments at
December 31, 2004. Changes in the derivative fair value will not have an impact on our results of operations unless these contracts are deemed to
be ineffective.
We have foreign currency exchange rate exposure related to our investment in MODEC, Inc., which was acquired during 2004 and is denominated
in Japanese yen. As an available-for-sale investment, we account for changes in value through other comprehensive income in stockholders’
equity. An immediate 10% adverse movement in the value of the U.S. dollar against the Japanese yen would result in a decrease in fair value of
the investment of $5.9 million.
Interest Rate Risk
Our debt instruments subject us to market risk associated with movements in interest rates. We did not have significant unhedged variable-rate
debt at December 31, 2004. In June 2003, we entered into three floating-to-fixed interest rate swaps related to $150.0 million of our commercial
paper borrowings. The effect of these interest rate swaps is to fix the effective annual interest rate on these borrowings at an average rate of 2.9%
until the swaps mature in June 2008.
Management’s Discussion and Analysis 58
We use a sensitivity analysis to measure the impact on fair values (for interest rate swaps) of an immediate 10% adverse movement in the interest
rates. This analysis was based on a modeling technique that measures the hypothetical market value resulting from a 10% change in interest
rates. A 10% decrease in the applicable interest rates, or approximately 0.2%, would result in a decrease of $1.7 million in the net fair value of our
derivative financial instruments at December 31, 2004.
Equity Price Risk
We have equity price risk exposure related to our investment in the common stock of MODEC, Inc., which was acquired during 2004. As an
available-for-sale investment, we account for changes in the equity price through other comprehensive income in stockholders’ equity. A 10%
decline in the value of the equity price would result in a decrease in fair value of investments of $5.9 million at December 31, 2004.
Critical Accounting EstimatesWe prepare the consolidated financial statements of FMC Technologies in conformity with United States generally accepted accounting principles.
As such, we are required to make certain estimates, judgments and assumptions about matters that are inherently uncertain. On an ongoing
basis, our management re-evaluates these estimates, judgments and assumptions for reasonableness because of the critical impact that these
factors have on the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of revenues and
expenses during the periods presented. Management has discussed the development and selection of these critical accounting estimates with the
Audit Committee of our Board of Directors and the Audit Committee has reviewed this disclosure.
Revenue Recognition Using the Percentage of Completion Method of Accounting
We record revenue on construction-type manufacturing and assembly projects using the percentage of completion method, where revenue is
recorded as work progresses on each contract. There are several acceptable methods of measuring progress toward completion. Most
frequently, we use the ratio of costs incurred to date to total estimated contract costs to measure this progress; however, there are also types of
contracts where we consistently apply the ratio of units delivered to date--or units of work performed--as a percentage of total units because we
have determined that these methods provide a more accurate measure of progress toward completion. Total estimated contract cost is a critical
accounting estimate because it can materially affect net income and it requires us to make judgments about matters that are uncertain.
Revenue recorded using the percentage of completion method amounted to $1,169.7 million, $804.3 million, and $678.9 million for the years
ended December 31, 2004, 2003, and 2002, respectively. A significant portion of our total revenue recorded under the percentage of completion
method relates to the Energy Production Systems business segment, primarily for subsea petroleum exploration equipment projects that involve
the design, engineering, manufacturing and assembly of complex, customer-specific systems. The systems are not built from standard bills of
material and typically require extended periods of time to construct.
We execute contracts with our customers that clearly describe the equipment, systems and/or services that we will provide and the amount of
consideration we will receive. After analyzing the drawings and specifications of the contract requirements, our project engineers estimate total
contract costs based on their experience with similar projects and then adjust these estimates for specific risks associated with each project, such
as technical risks associated with a new design. Costs associated with specific risks are estimated by assessing the probability that conditions will
arise that will affect our total cost to complete the project. After work on a project begins, assumptions that form the basis for our calculation of
total project cost are examined on a monthly basis and our estimates are updated to reflect new information as it becomes available.
It is reasonably possible that we could have used different estimates of total contract costs in our calculation of revenue recognized using the
percentage of completion method. If we had used a different estimate of total contract costs for each contract in progress at December 31, 2004,
a 1% increase or decrease in the estimated margin earned on each contract would have increased or decreased total revenue and pre-tax income
for the year ended December 31, 2004, by $10.7 million.
Inventory ValuationInventory is recorded at the lower of cost or net realizable value. In order to determine net realizable value, we evaluate each component ofinventory on a regular basis to determine whether it is excess or obsolete. We record the decline in the carrying value of estimated excess orobsolete inventory as a reduction of inventory and as an expense included in cost of sales in the period it is identified. Our estimate of excess andobsolete inventory is a critical accounting estimate because it is highly susceptible to change from period to period. In addition, it requiresmanagement to make judgments about the future demand for inventory.
In order to quantify excess or obsolete inventory, we begin by preparing a candidate listing of the components of inventory that have notdemonstrated usage within the most recent two-year period. This list is then reviewed with sales, production and materials managementpersonnel to determine whether this list of potential excess or obsolete inventory items is accurate. Management considers as part of thisevaluation whether there has been a change in the market for finished goods, whether there will be future demand for on-hand inventory items andwhether there are components of inventory that incorporate obsolete technology.
It is reasonably possible that we could have used different assumptions about future sales when estimating excess or obsolete inventory. Had we
assumed that future sales would be 10% higher or lower than those used in our forecast, the effect on our estimate of excess or obsolete
inventory and pre-tax income for the year ended December 31, 2004, would have been an increase or decrease of $2.0 million, on a current cost
basis.
59 Management’s Discussion and Analysis
Accounting for Income TaxesIn determining our current income tax provision we assess temporary differences resulting from differing treatments of items for tax and accounting
purposes. These differences result in deferred tax assets and liabilities, which are recorded in our consolidated balance sheets. When we maintain
deferred tax assets we must assess the likelihood that these assets will be recovered through adjustments to future taxable income. To the extent
we believe recovery is not likely, we establish a valuation allowance. We record an allowance reducing the asset to a value we believe will be
recoverable based on our expectation of future taxable income. We believe the accounting estimate related to the valuation allowance is a critical
accounting estimate because it is highly susceptible to change from period to period as it requires management to make assumptions about our
future income over the lives of the deferred tax assets, and the impact of increasing or decreasing the valuation allowance is potentially material to
our results of operations.
Forecasting future income requires us to use a significant amount of judgment. In estimating future income, we use our internal operating budgets
and long-range planning projections. We develop our budgets and long-range projections based on recent results, trends, economic and industry
forecasts influencing our segments’ performance, our backlog, planned timing of new product launches, and customer sales commitments.
Significant changes in the expected realizability of the deferred tax asset would require that we provide an additional valuation allowance against
the gross value of our total deferred tax assets, resulting in a reduction of net income.
As of December 31, 2004, we estimated that it is not likely that we will generate future taxable income in certain foreign jurisdictions in which we
have cumulative net operating losses and, therefore, we have provided a valuation allowance against the related deferred tax assets. As of
December 31, 2004, we estimated that it is more likely than not that we will have future taxable income in the United States to utilize our domestic
deferred tax assets. Therefore, we have not provided a valuation allowance against any domestic deferred tax assets.
With respect to domestic deferred tax assets, it is reasonably possible we could have used a different estimate of future taxable income in
determining the need for a valuation allowance. If our estimate of future taxable income was 25% lower than the estimate used, we would still
generate sufficient taxable income to utilize such deferred tax assets.
Retirement Benefits
We provide most of our employees with certain retirement (pension) and postretirement (health care and life insurance) benefits. In order to
measure the expense and obligations associated with these retirement benefits, management must make a variety of estimates, including discount
rates used to value certain liabilities, expected return on plan assets set aside to fund these costs, rate of compensation increase, employee
turnover rates, retirement rates, mortality rates and other factors. We update these estimates on an annual basis or more frequently upon the
occurrence of significant events. These accounting estimates bear the risk of change due to the uncertainty attached to the estimate as well as
the fact that these estimates are difficult to measure. Different estimates used by management could result in our recognizing different amounts of
expense over different periods of time.
We use third-party specialists to assist management in evaluating our assumptions as well as appropriately measuring the costs and obligations
associated with these retirement benefits. The discount rate and expected return on plan assets are based primarily on investment yields available
and the historical performance of our plan assets. They are critical accounting estimates because they are subject to management’s judgment and
can materially affect net income.
Pension expense was $25.2 million, $17.9 million and $13.7 million for the years ended December 31, 2004, 2003 and 2002, respectively.
The discount rate used affects the periodic recognition of the interest cost component of net periodic pension cost. The discount rate is based on
rates at which the pension benefit obligation could effectively be settled on a present value basis. We develop the assumed weighted-average
discount rate utilizing investment yields available at our determination date based on AA-rated corporate long-term bonds. Significant changes in
the discount rate, such as those caused by changes in the yield curve, the mix of bonds available in the market, the duration of selected bonds,
and the timing of expected benefit payments may result in volatility in pension expense and minimum pension liabilities. We reduced the discount
rate for our domestic and certain of our international plans during 2004. The weighted average discount rate declined from 6.1% to 5.8% in 2004,
after decreasing in 2003 from 6.5% in 2002.
It is reasonably possible that we could have used a different estimate for the weighted-average discount rate in calculating annual pension
expense. Holding other assumptions constant, for every 1% reduction in the discount rate, annual pension expense would increase by
approximately $11.8 million before taxes. Holding other assumptions constant, for every 1% increase in the discount rate, annual pension expense
would decrease by approximately $13.9 million before taxes.
Our actual returns on plan assets on trailing 5-year and trailing 10-year bases have exceeded the 2004 estimated long-term rate of return of 8.6%.
Our actual returns on plan assets were 22.8% and 11.8% in 2003 and 2004, respectively. The weighted average rate was adjusted in 2003 from
the previous estimate of 9.2% due to the expectation that more modest returns will be obtained in the near future. The expected return on plan
Management’s Discussion and Analysis 60
assets is recognized as part of the net periodic pension cost. The difference between the expected return and the actual return on plan assets is
amortized over the expected remaining service life of employees, so there is a lag time between the market’s performance and its impact on plan
results.
It is reasonably possible that we could have used a different estimate for the weighted average rate of return on plan assets in calculating pension
expense. Holding other assumptions constant, for every 1% reduction in the expected rate of return on plan assets, annual pension expense
would increase by approximately $5.7 million before taxes.
Impact of Recently Issued Accounting Pronouncements In November 2003, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 03-1, “The Meaning of Other Than
Temporary Impairment and its Application to Certain Investments.” EITF 03-1 provides guidance on determining other than temporary
impairments and its application to marketable equity securities and debt securities accounted for under Statement of Financial Accounting
Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” In September 2004, the FASB issued FASB
Staff Position (“FSP”) EITF Issue 03-1-1 which delayed the effective date for the measurement and recognition guidance contained in the EITF 03-
1 pending finalization of the draft FSP EITF Issue 03-1-a, “Implementation Guidance for the Application of Paragraph 16 of EITF 03-1.” The
disclosure requirements of EITF 03-1 remain in effect. We adopted the disclosure requirements of EITF 03-1 as of December 31, 2004. The
adoption of the recognition and measurement provisions of EITF 03-1 are not expected to have a material impact on our results of operations,
financial position or cash flows.
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was signed into law on December 8, 2003. The Act
introduces a prescription drug benefit under Medicare (“Medicare Part D”) as well as a federal subsidy to sponsors of retiree health care benefit
plans that provide a prescription drug benefit that is at least actuarially equivalent to Medicare Part D. Under FSP 106-1, issued in January 2004,
we elected to defer recognizing the effect of the Act until the pending authoritative guidance on the accounting for the federal subsidy was issued.
In May 2004, the FASB issued FSP 106-2, which provides guidance on accounting for the effects of the Act and also requires certain disclosures.
Under FSP 106-2, plan sponsors are required to determine whether their retiree drug coverage is actuarially equivalent to the Medicare Part D
coverage. Sponsors are also allowed the option of deferring recognition if it has not been concluded whether benefits under their plan are
actuarially equivalent to Medicare Part D. Regulations providing clarification about how to determine whether a sponsor's plan qualifies for
actuarial equivalency are pending until the U.S. Department of Health and Human Services completes its interpretative work on the Act. Without
clarifying regulations related to the Act, we have been unable to determine the extent to which the benefits provided by our plan are actuarially
equivalent to those under Medicare Part D; therefore, our reported net periodic benefit cost does not reflect any amount associated with the
federal subsidy. When we obtain clarification, we will evaluate whether the benefits provided under our plan are actuarially equivalent. As part of
this evaluation, we may consider amending our retiree health program to coordinate with the new Medicare prescription drug program or to
receive the direct subsidy from the government.
If benefits provided by our plan are found to be actuarially equivalent to Medicare Part D, and the effects of the subsidy on the plan are significant,
we will perform a measurement of plan assets and obligations as of the date that actuarial equivalency is determined consistent with the
requirements of FSP 106-2. Any effect on the accumulated benefit obligation due to the subsidy shall be reflected as an actuarial gain. In addition,
the net periodic benefit cost for subsequent periods would reflect the effects of those measurements.
In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 amends
Accounting Research Bulletin No. 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted
materials (spoilage) should be recognized as current period charges. In addition, SFAS No. 151 requires that allocation of fixed production
overhead to inventory be based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. We have not assessed the impact that SFAS No. 151 will have on our results of operations, financial
position or cash flows.
In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment,” which replaces SFAS No. 123, “Accounting for Stock-Based
Compensation” and supersedes Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees.” SFAS No.
123R rescinds the intrinsic value option for accounting for stock-based compensation under APB No. 25 and requires an entity to measure the
cost of employee service received in exchange for an award of equity instruments based on the grant date fair value of the award. In addition,
SFAS No. 123R amends the accounting for modifications and forfeitures of awards in determining compensation cost. SFAS No. 123R is effective
for the first interim or annual period that begins after June 15, 2005. As we currently account for our stock-based compensation under the fair
value provisions of SFAS No. 123, we will utilize the modified prospective application method upon adoption. We have not assessed the impact
that SFAS No. 123R will have on results of operations, financial position or cash flows.
In December 2004, the FASB issued FSP FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Repatriation Provision within the
American Jobs Creation Act of 2004.” FSP FAS 109-2 provides implementation guidance related to the repatriation provision of the American
Jobs Creation Act of 2004. We have not completed our assessment of whether, and to what extent, earnings of foreign subsidiaries might be
repatriated. We have complied with the disclosure requirements of FSP FAS 109-2 regarding our evaluation of the repatriation provision for
purposes of applying SFAS No. 109, “Accounting for Income Taxes.”
F i n a n c i a l S t a t e m e n t s
61 Financial Statements
FMC TECHNOLOGIES, INC. AND CONSOLIDATED SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data) Year Ended December 31,
2004 2003 2002
Revenue $2,767.7 $2,307.1 $2,071.5
Costs and expenses:
Cost of sales and services 2,266.3 1,843.6 1,654.2
Asset impairment (Note 8) 6.5 - -
Selling, general and administrative expense 340.4 312.6 274.8
Research and development expense 50.4 45.3 47.8
Total costs and expenses 2,663.6 2,201.5 1,976.8
Gain on conversion of investment in MODEC
International LLC (Note 3) 60.4 - -
Minority interests 1.4 (1.1 ) (2.2 )
Income before interest income, interest expense and income taxes 165.9 104.5 92.5
Interest income 1.4 1.2 1.6
Interest expense (8.3 ) (10.1 ) (14.1 )
Income before income taxes and the cumulative effect of a change in
accounting principle 159.0 95.6 80.0
Provision for income taxes (Note 10) 42.3 26.7 22.2
Income before the cumulative effect of a change in accounting principle 116.7 68.9 57.8
Cumulative effect of a change in accounting principle, net of income taxes
(Note 1) - - (193.8 )
Net income (loss) $ 116.7 $ 68.9 $ (136.0 )
Basic earnings (loss) per share (Note 2):
Income before the cumulative effect of a change in
accounting principle $ 1.73 $ 1.04 $ 0.89
Cumulative effect of a change in accounting principle - - (2.97 )
Basic earnings (loss) per share $ 1.73 $ 1.04 $ (2.08 )
Diluted earnings (loss) per share (Note 2):
Income before the cumulative effect of a change in
accounting principle $ 1.68 $ 1.03 $ 0.87
Cumulative effect of a change in accounting principle - - (2.90 )
Diluted earnings (loss) per share $ 1.68 $ 1.03 $ (2.03 )
The accompanying notes are an integral part of the consolidated financial statements.
Financial Statements 62
FMC TECHNOLOGIES, INC. AND CONSOLIDATED SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
(In millions, except per share data) December 31,
2004 2003
Assets
Current assets:
Cash and cash equivalents $ 124.1 $ 29.0
Trade receivables, net of allowances of $10.9 in 2004 and $10.3 in 2003 671.7 544.1
Inventories (Note 5) 316.3 286.8
Prepaid expenses 15.0 12.8
Other current assets 90.0 76.3
Total current assets 1,217.1 949.0
Investments (Note 6) 76.6 31.8
Property, plant and equipment, net (Note 7) 332.8 327.9
Goodwill (Note 8) 116.8 118.2
Intangible assets, net (Note 8) 72.0 71.2
Other assets 31.6 20.8
Deferred income taxes (Note 10) 47.0 78.2
Total assets $ 1,893.9 $ 1,597.1
Liabilities and stockholders' equity
Current liabilities:
Short-term debt and current portion of long-term debt (Note 9) $ 2.7 $ 20.4
Accounts payable, trade and other 368.8 272.4
Advance payments 297.5 255.6
Accrued payroll 60.8 55.1
Income taxes payable 57.0 23.4
Other current liabilities 176.6 159.5
Current portion of accrued pension and other postretirement benefits (Note 12) 28.7 24.5
Deferred income taxes (Note 10) 3.3 38.9
Total current liabilities 995.4 849.8
Long-term debt, less current portion (Note 9) 160.4 201.1
Accrued pension and other postretirement benefits, less current portion (Note 12) 20.6 34.2
Reserve for discontinued operations (Note 11) 6.9 12.9
Other liabilities 42.5 49.2
Minority interests in consolidated companies 5.9 6.6
Commitments and contingent liabilities (Note 19)
Stockholders' equity (Note 14):
Preferred stock, $0.01 par value, 12.0 shares authorized; no shares issued in 2004 or 2003 - -
Common stock, $0.01 par value, 195.0 shares authorized; 68.8 and 66.4 shares issued
in 2004 and 2003, respectively; 68.7 and 66.2 shares outstanding in 2004 and 2003,
respectively 0.7 0.7
Common stock held in employee benefit trust, at cost, 0.1 and 0.2 shares in 2004 and
2003, respectively (2.4) (3.0)
Capital in excess of par value of common stock 637.8 580.5
Retained earnings (accumulated deficit) 87.1 (29.6)
Accumulated other comprehensive loss (61.0 ) (105.3 )
Total stockholders' equity 662.2 443.3
Total liabilities and stockholders' equity $ 1,893.9 $ 1,597.1
The accompanying notes are an integral part of the consolidated financial statements.
63 Financial Statements
FMC TECHNOLOGIES, INC. AND CONSOLIDATED SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions) Year Ended December 31,
2004 2003 2002
Cash provided (required) by operating activities of continuing operations:
Income before the cumulative effect of a change in accounting principle $116.7 $ 68.9 $ 57.8
Adjustments to reconcile income before the cumulative effect of
a change in accounting principle to cash provided by operating
activities of continuing operations:
Depreciation 53.5 48.2 40.1
Amortization 10.0 9.5 8.5
Gain on conversion of investment in MODEC International LLC (60.4) - -
Asset impairment charge 6.5 - -
Employee benefit plan costs 38.4 33.8 24.2
Deferred income taxes (8.9) 3.5 15.0
Other 5.0 3.2 5.7
Changes in operating assets and liabilities, net of effects of acquisitions:
Trade receivables, net (105.3) (89.8) (34.2)
Inventories (17.7) 13.5 27.0
Other current assets and other assets (37.7) (15.7) (15.9)
Accounts payable, trade and other 85.3 49.6 52.0
Advance payments 28.7 69.4 33.8
Accrued payroll, other current liabilities and other liabilities 21.4 (22.1) (36.6)
Income taxes payable 33.3 2.8 (20.5)
Accrued pension and other postretirement benefits, net (35.9 ) (24.4 ) (37.9 )
Cash provided by operating activities of continuing operations $ 132.9 $ 150.4 $ 119.0
(Continued)
Financial Statements 64
FMC TECHNOLOGIES, INC. AND CONSOLIDATED SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In millions) Year Ended December 31,
2004 2003 2002
Cash provided by operating activities of continuing operations $ 132.9 $ 150.4 $ 119.0
Cash required by discontinued operations (5.9 ) (5.2 ) (5.3 )
Cash provided (required) by investing activities:
Acquisitions (net of cash acquired) and joint ventures (2.9) (46.4) -
Capital expenditures (50.2) (65.2) (68.1)
Retirement of sale-leaseback obligations - (35.9) (21.6)
Proceeds from conversion of investment in MODEC
International LLC 27.9 - -
Proceeds from disposal of property, plant and equipment 7.9 13.0 25.8
Net decrease (increase) in investments 0.7 1.7 (2.5 )
Cash required by investing activities (16.6 ) (132.8 ) (66.4 )
Cash provided (required) by financing activities:
Net decrease in short-term debt (17.8) (39.1) (19.5)
Net increase (decrease) in commercial paper (0.2) 150.0 -
Proceeds from issuance of long-term debt 9.7 - -
Repayment of long-term debt (50.1) (131.2) (20.6)
Distributions to FMC Corporation - - (4.4)
Proceeds from exercise of stock options 38.6 7.5 2.3
Net (increase) decrease in common stock held in
employee benefit trust 0.6 (0.5 ) (1.3 )
Cash required by financing activities (19.2 ) (13.3 ) (43.5 )
Effect of exchange rate changes on cash and cash equivalents 3.9 (2.5 ) 0.6
Increase (decrease) in cash and cash equivalents 95.1 (3.4) 4.4
Cash and cash equivalents, beginning of year 29.0 32.4 28.0
Cash and cash equivalents, end of year $ 124.1 $ 29.0 $ 32.4
Supplemental disclosures of cash flow information:
Cash paid for interest (net of interest capitalized) $ 8.0 $ 9.5 $ 13.5
Cash paid for income taxes (net of refunds received) $ 18.1 $ 21.5 $ 25.9
The accompanying notes are an integral part of the consolidated financial statements.
65 Financial Statements
FMC TECHNOLOGIES, INC. AND CONSOLIDATED SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In millions) Common
stock
Common
stock held in
employee
benefit trust
Capital in excess of
par value of
common stock
Retained
earnings
(accumulated
deficit)
Accumulated
other
compre-
hensive
income (loss) Total
Compre-
hensive
income (loss)
Balance at December 31, 2001 $0.7 $(1.2) $534.3 $ 37.5 $(146.6) $424.7
Net loss - - - (136.0) - (136.0) $(136.0)
Issuance of common stock - - 2.3 - - 2.3 -
Net purchases of common stock for
employee benefit trust, at cost
(Note 14) - (1.3) - - - (1.3) -Adjustment for true-up with FMC
Corporation - - (4.4) - - (4.4) -Stock-based compensation (Note 13) - - 16.0 - - 16.0 -
Foreign currency translation adjustment
(Note 15) - - - - 32.1 32.1 32.1
Minimum pension liability adjustment (net
of an income tax benefit of $18.5)
(Note 12) - - - - (36.2) (36.2) (36.2)
Net deferral of hedging gains (net of
income taxes of $3.3) (Note 16) - - - - 5.1 5.1 5.1
Other - - 11.8 - - 11.8 -
$(135.0 )
Balance at December 31, 2002 $0.7 $(2.5) $560.0 $ (98.5) $(145.6) $314.1
Net income - - - 68.9 - 68.9 $ 68.9
Issuance of common stock - - 7.5 - - 7.5 -
Excess tax benefits on stock-based
payment arrangements - - 1.8 - - -
Net purchases of common stock for
employee benefit trust, at cost
(Note 14) - (0.5) - - - (0.5) -
Stock-based compensation (Note 13) - - 15.2 - - 15.2 -
Foreign currency translation adjustment
(Note 15) - - - - 26.1 26.1 26.1
Minimum pension liability adjustment (net
of income taxes of $8.1) (Note 12) - - - - 12.5 12.5 12.5
Net deferral of hedging gains (net of
income taxes of $1.1) (Note 16) - - - - 1.7 1.7 1.7
Other - - (4.0 ) - - (4.0 ) -
$ 109.2
Balance at December 31, 2003 $0.7 $(3.0 ) $580.5 $ (29.6 ) $(105.3 ) $443.3
1.8
Financial Statements 66
FMC TECHNOLOGIES, INC. AND CONSOLIDATED SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)
(In millions) Common
stock
Common
stock held in
employee
benefit trust
Capital in excess
of par value of
common stock
Retained
earnings
(accumulated deficit)
Accumulated
other
compre-
hensive
income (loss) Total
Compre-
hensive
income
(loss)
Balance at December 31, 2003 $0.7 $(3.0) $580.5 $ (29.6) $(105.3) $443.3
Net income - - - 116.7 - 116.7 $116.7
Issuance of common stock - - 38.6 - - 38.6 -
Excess tax benefits on stock-based
payment arrangements - - 6.3 - - 6.3 -
Net sales of common stock for
employee benefit trust, at cost
(Note 14) - 0.6 - - - 0.6 -
Stock-based compensation (Note 13) - - 12.1 - - 12.1 -
Foreign currency translation adjustment
(Note 15) - - - - 37.8 37.8 37.8
Minimum pension liability adjustment
(net of an income tax benefit of $1.1)
(Note 12) - - - - (1.7) (1.7) (1.7)
Net deferral of hedging gains (net of
income taxes of $1.1) (Note 16) - - - - 2.1 2.1 2.1
Unrealized gain on investment (net of
income taxes of $4.0) (Note 6) - - - - 6.1 6.1 6.1
Other - - 0.3 - - 0.3 -
$161.0
Balance at December 31, 2004 $0.7 $(2.4 ) $637.8 $ 87.1 $ (61.0 ) $662.2
The accompanying notes are an integral part of the consolidated financial statements.
67 Financial Statements
FMC TECHNOLOGIES, INC. AND CONSOLIDATED SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation--FMC Technologies, Inc. and consolidated subsidiaries ("FMC Technologies" or the "Company") designs, manufactures and
services sophisticated machinery and systems for its customers through its four business segments: Energy Systems (comprising Energy
Production Systems and Energy Processing Systems), FoodTech and Airport Systems. The Company’s consolidated financial statements have
been prepared in United States dollars and in accordance with United States generally accepted accounting principles (“GAAP”).
Use of estimates--The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The Company bases
its estimates on historical experience and on other assumptions that it believes to be relevant under the circumstances. In particular, judgment is
used in areas such as revenue recognition using the percentage of completion method of accounting, making estimates associated with the
valuation of inventory and income tax assets, and accounting for retirement benefits and contingencies.
Principles of consolidation--The consolidated financial statements include the accounts of FMC Technologies and its majority-owned subsidiaries
and affiliates. Intercompany accounts and transactions are eliminated in consolidation.
Reclassifications--Certain prior-year amounts have been reclassified to conform to the current year's presentation.
Revenue recognition--Revenue from equipment sales is recognized either upon transfer of title to the customer (which is upon shipment or when
customer-specific acceptance requirements are met) or under the percentage of completion method.
The percentage of completion method of accounting is used for construction-type manufacturing and assembly projects that involve significant
design and engineering effort in order to satisfy detailed customer-supplied specifications. Under the percentage of completion method, revenue is
recognized as work progresses on each contract. The Company primarily applies the ratio of costs incurred to date to total estimated contract
costs to measure this ratio; however, there are certain types of contracts where it consistently applies the ratio of units delivered to date—or units
of work performed—as a percentage of total units, because it has been determined that these methods provide a more accurate measure of
progress toward completion. If it is not possible to form a reliable estimate of progress toward completion, no revenues or costs are recognized
until the project is complete or substantially complete. Any expected losses on construction-type contracts in progress are charged to operations
in the period the losses become probable.
Modifications to construction-type contracts, referred to as "change orders," effectively change the provisions of the original contract, and may, for
example, alter the specifications or design, method or manner of performance, equipment, materials, sites, and/or period for completion of the
work. If a change order represents a firm price commitment from a customer, the Company accounts for the revised estimate as if it had been
included in the original estimate, effectively recognizing the pro rata impact of the new estimate on its calculation of progress toward completion in
the period in which the firm commitment is received. If a change order is unpriced: (1) the Company includes the costs of contract performance in
its calculation of progress toward completion in the period in which the costs are incurred or become probable; and (2) the Company includes the
revenue related to the change order in its calculation of progress toward completion in the period in which it can be reliably estimated and
realization is assured beyond a reasonable doubt. The assessment of realization may be based upon the Company's previous experience with the
customer or based upon the Company receiving a firm price commitment from the customer.
Service revenue is recognized as the service is provided.
Cash equivalents--The Company considers investments in all highly-liquid debt instruments with original maturities of three months or less to be
cash equivalents.
Trade receivables--The Company provides an allowance for doubtful accounts on trade receivables equal to the estimated uncollectible amounts.
This estimate is based on historical collection experience and a specific review of each customer’s trade receivable balance.
Amounts included in trade receivables representing revenue in excess of billings on contracts accounted for under the percentage of completion
method amounted to $206.5 million and $146.7 million at December 31, 2004 and 2003, respectively.
Inventories--Inventories are stated at the lower of cost or net realizable value. Inventory costs include those costs directly attributable to products,
including all manufacturing overhead but excluding costs to distribute. Cost is determined on the last-in, first-out ("LIFO") basis for all domestic
inventories, except certain inventories relating to construction-type contracts, which are stated at the actual production cost incurred to date,
reduced by the portion of these costs identified with revenue recognized. The first-in, first-out ("FIFO") method is used to determine the cost for all
other inventories.
Financial Statements 68
Impairment of long-lived and intangible assets--Long-lived assets, including property, plant and equipment, identifiable intangible assets being
amortized, capitalized software costs, and assets held for sale are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the long-lived asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds
the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If it is determined that an
impairment loss has occurred, the loss is measured as the amount by which the carrying amount of the long-lived asset exceeds its fair value.
Long-lived assets held for sale are reported at the lower of carrying value or fair value less cost to sell.
Investments--FMC Technologies uses the equity method to account for investments in the common stock of affiliated companies in which the
Company has significant influence over operating and financial policies. Significant influence is generally when the Company has between 20%
and 50% ownership interest. All other investments are carried at fair value or at cost, as appropriate.
The Company has investments in equity securities that represent less than a 20% ownership interest, such as the common stock in MODEC, Inc.
(Note 6), which are primarily designated as available-for-sale. These investments are classified as investments in the consolidated balance sheets
and are carried at fair value with unrealized gains and losses reported, net of tax, in accumulated other comprehensive income (loss). Each
investment is reviewed regularly to evaluate whether it has experienced an other than temporary decline in fair value. If the Company believes that
an other than temporary decline exists, the investment is written down to the fair market value with a charge to earnings.
Property, plant and equipment--Property, plant and equipment is recorded at cost. Depreciation for financial reporting purposes is provided
principally on the straight-line basis over the estimated useful lives of the assets (land improvements--20 years; buildings--20 to 50 years; and
machinery and equipment--3 to 15 years). Gains and losses are reflected in income upon the sale or retirement of assets. Expenditures that
extend the useful lives of property, plant and equipment are capitalized and depreciated over the estimated remaining life of the asset.
Capitalized software costs--Other assets include the capitalized cost of internal use software (including Internet web sites). The assets are stated
at cost less accumulated amortization and totaled $15.3 million and $10.2 million at December 31, 2004 and 2003, respectively. These software
costs include significant purchases of software and internal and external costs incurred during the application development stage of software
projects. These costs are amortized on a straight-line basis over the estimated useful lives of the assets. For internal use software, the useful lives
range from three to ten years. For Internet web site costs, the estimated useful lives do not exceed three years.
Goodwill and other intangible assets--Goodwill and acquired intangible assets deemed to have indefinite lives are not subject to amortization but
are required to be tested for impairment on an annual basis (or more frequently if impairment indicators arise). The Company adopted Statement of
Financial Accounting Standards (“SFAS”) No. 142 "Goodwill and Other Intangible Assets," as of January 1, 2002, and upon adoption, discontinued
the amortization of goodwill and recorded a goodwill impairment loss amounting to $215.0 million before taxes ($193.8 million after tax). This loss
was not the result of a change in the outlook of the businesses but was due to a change in the method of measuring goodwill impairment as
required by SFAS No. 142. The Company has established October 31 as the date of its annual test for impairment of goodwill. The Company's
acquired intangible assets are being amortized on a straight-line basis over their estimated useful lives, which range from 7 to 40 years. None of
the Company's acquired intangible assets have been deemed to have indefinite lives.
Advance payments--Amounts advanced by customers as deposits on orders not yet billed and progress payments on construction-type contracts
are classified as advance payments.
Reserve for discontinued operations--Reserves related to personal injury and product liability claims associated with the Company's discontinued
operations are recorded based on an actuarially-determined estimate of liabilities. The Company evaluates the estimate of these liabilities on a
regular basis, and makes adjustments to the recorded liability balance to reflect current information regarding the estimated amount of future
payments to be made on both reported claims and incurred but unreported claims. On an annual basis, the Company engages an actuary to
prepare an estimate of the liability for these claims. The actuarial estimate of the liability is based upon historical claim and settlement experience
by year, recent trends in the number of claims and the cost of settlements, and available stop-loss insurance coverage. Factors such as the
estimated number of pieces of equipment in use and the expected loss rate per unit are also taken into consideration. In addition to estimated
claims for product liabilities, the reserve also includes costs for claims administration and insurance coverage. Adjustments to the reserve for
discontinued operations are included in results of discontinued operations on the consolidated statements of income.
Income taxes--Current income taxes are provided on income reported for financial statement purposes, adjusted for transactions that do not enter
into the computation of income taxes payable in the same year. Deferred tax assets and liabilities are measured using enacted tax rates for the
expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.
A valuation allowance is established whenever management believes that it is more likely than not that deferred tax assets may not be realizable.
69 Financial Statements
Income taxes are not provided on the Company's equity in undistributed earnings of foreign subsidiaries or affiliates when it is management's
intention that such earnings will remain invested in those companies. Taxes are provided on such earnings in the year in which the decision is
made to repatriate the earnings.
Stock-based employee compensation--Effective January 1, 2004, the Company adopted the fair value recognition provisions of SFAS No. 123,
“Accounting for Stock-Based Compensation,” using the retroactive restatement method described in SFAS No. 148, “Accounting for Stock-Based
Compensation – Transition and Disclosure.” Under the fair value recognition provisions of SFAS No. 123, stock-based compensation cost is
measured at the grant date based on the value of the award and is recognized as expense over the vesting period.
All periods since January 1, 2000, have been restated to reflect the compensation cost that would have been recognized had the recognition
provisions of SFAS No. 123 been applied to all awards granted after January 1, 1995.
The following tables detail the effect of the restatement on capital in excess of par value of common stock, retained earnings (accumulated deficit),
deferred income tax assets, net income (loss) and earnings (loss) per share:
Consolidated Balance Sheets
As of December 31,
2003 2002 2001
(In millions) PPreviously As Previously As Previously As
reported restated reported restated reported restated
Capital in excess of par value of
common stock $ 548.7 $ 580.5 $ 538.6 $ 560.0 $ 523.0 $ 534.3
Retained earnings (accumulated deficit) $ (11.8) $ (29.6) $ (87.4) $ (98.5) $ 42.3 $ 37.5
Deferred income tax assets $ 64.2 $ 78.2 $ 74.6 $ 84.9 $ 15.4 $ 21.9
Consolidated Statements of Income
Year Ended Year Ended
December 31, 2003 December 31, 2002
(In millions, except per share data) Previously reported As restated Previously reported As restated
Net income (loss) $ 75.6 $ 68.9 $(129.7 ) $(136.0 )
Basic earnings (loss) per share $ 1.14 $ 1.04 $ (1.99 ) $ (2.08 )
Diluted earnings (loss) per share $ 1.13 $ 1.03 $ (1.94 ) $ (2.03 )
In addition, a transition adjustment of $3.5 million was recorded to increase capital in excess of par value of common stock and deferred tax
assets as of January 1, 2000.
Common stock held in employee benefit trust--Shares of the Company’s common stock are purchased by the plan administrator of the FMC
Technologies, Inc. Non-Qualified Savings and Investment Plan and placed in a trust owned by the Company. Purchased shares are recorded at
cost and classified as a reduction of stockholders' equity in the consolidated balance sheets.
Earnings per common share (“EPS”)--Basic EPS is computed using the weighted-average number of common shares outstanding. Diluted EPS
gives effect to the potential dilution of earnings which could have occurred if additional shares were issued for stock option exercises and
restricted stock under the treasury stock method. The treasury stock method assumes that proceeds that would be obtained upon exercise of
common stock options and issuance of restricted stock are used to buy back outstanding common stock at the average market price during the
period.
Foreign currency translation--Assets and liabilities of foreign operations in non-highly inflationary countries are translated at exchange rates in effect
at the balance sheet date, while income statement accounts are translated at the average exchange rates for the period. For these operations,
translation gains and losses are recorded as a component of accumulated other comprehensive income (loss) in stockholders' equity until the
foreign entity is sold or liquidated. For operations in highly inflationary countries and where the local currency is not the functional currency,
inventories, property, plant and equipment, and other non-current assets are converted to U.S. dollars at historical exchange rates, and all gains or
losses from conversion are included in net income. Foreign currency effects on cash and cash equivalents and debt in hyperinflationary economies
are included in interest income or expense.
Financial Statements 70
Derivative financial instruments and foreign currency transactions--Derivatives are recognized in the consolidated balance sheets at fair value.
Changes in the fair value of derivative instruments are recorded in current earnings or deferred in accumulated other comprehensive income (loss),
depending on whether a derivative is designated as, and is effective as, a hedge and on the type of hedging transaction. Cash flows from
derivative contracts are reported in the consolidated statements of cash flows in the same categories as the cash flows from the underlying
transactions.
The Company recognizes all derivatives as assets or liabilities in the consolidated balance sheets at fair value, with classification as current or non-
current based upon the maturity of the derivative instrument. Hedge accounting is only applied when the derivative is deemed to be highly effective
at offsetting changes in anticipated cash flows of the hedged item or transaction. Changes in fair value of derivatives that are designated as cash
flow hedges are deferred in accumulated other comprehensive income (loss) until the underlying transactions are recognized in earnings, at which
time any deferred hedging gains or losses are also recorded in earnings on the same line as the hedged item. The ineffective portion of the change
in the fair value of a derivative used as a cash flow hedge is recorded in earnings as incurred. The Company also uses forward contracts to hedge
foreign currency assets and liabilities. These contracts are not designated as hedges; therefore, the changes in fair value of these contracts are
recognized in earnings as they occur and offset gains or losses on the related asset or liability.
Recently issued accounting pronouncements--In November 2002, Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 45,
“Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation
of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34,” was issued. This Interpretation enhances the disclosures
to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. The Interpretation also
clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial
recognition and measurement provisions of the Interpretation were applicable to guarantees issued or modified after December 31, 2002, and the
disclosure requirements were effective for financial statements of interim or annual periods ending after December 15, 2002. The Company
incorporated the applicable disclosures for its significant guarantees outstanding beginning with the year ended December 31, 2002. The
recognition provisions of this Interpretation were implemented in 2003 and did not have a material impact on the Company’s financial position or
results of operation.
In November 2002, the FASB’s Emerging Issues Task Force (“EITF”) reached consensus regarding when a revenue arrangement with multiple
deliverables should be divided into separate units of accounting, and, if so, how consideration should be allocated. The new guidance, EITF
Abstract No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables,” applies to revenue arrangements entered into in fiscal
periods beginning after June 15, 2003. While the conclusions in this consensus do not have an impact on the total amount of revenue recorded
under an arrangement, they may have some impact on the timing of revenue recognition. Implementation of the provisions of this consensus did
not have a material impact on the Company’s financial position or results of operations.
In January 2003, the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities” (revised December 2003 as FIN 46R). FIN 46R further
explains how to identify variable interest entities and how to determine when a business enterprise should include the assets, liabilities,
noncontrolling interest and results of a variable interest entity in its consolidated financial statements. The Company adopted FIN 46R as of
December 31, 2003 for interests in variable interest entities that are considered to be special purpose entities. As of March 31, 2004, the
Company adopted the provisions of FIN 46R for all other types of variable interest entities. The Company has determined that FIN 46R did not
have a material impact on the Company’s results of operations, financial position or cash flows.
In November 2003, the EITF reached a consensus on EITF Issue No. 03-1, “The Meaning of Other Than Temporary Impairment and its Application
to Certain Investments.” EITF 03-1 provides guidance on determining other than temporary impairments and its application to marketable equity
securities and debt securities accounted for under SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” In
September 2004, the FASB issued FASB Staff Position (“FSP”) EITF Issue 03-1-1 which delayed the effective date for the measurement and
recognition guidance contained in the EITF 03-1 pending finalization of the draft FSP EITF Issue 03-1-a, “Implementation Guidance for the
Application of Paragraph 16 of EITF 03-1.” The disclosure requirements of EITF 03-1 remain in effect. The Company adopted the disclosure
requirements of EITF 03-1 as of December 31, 2004. The adoption of the recognition and measurement provisions of EITF 03-1 are not expected
to have a material impact on the Company’s results of operations, financial position or cash flows.
In December 2003, SFAS No. 132 (revised), “Employers' Disclosures about Pensions and Other Postretirement Benefits”, was issued. SFAS No.
132 (revised) prescribes employers' disclosures about pension plans and other postretirement benefit plans; it does not change the measurement
or recognition of those plans. The statement retains and revises the disclosure requirements contained in the original SFAS No. 132. It also
requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other
postretirement benefit plans. The statement is effective for fiscal years ending after December 15, 2003. The Company's disclosures in Note 12
incorporate the requirements of SFAS No. 132 (revised).
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was signed into law on December 8, 2003. The Act
introduces a prescription drug benefit under Medicare (“Medicare Part D”) as well as a federal subsidy to sponsors of retiree health care benefit
plans that provide a prescription drug benefit that is at least actuarially equivalent to Medicare Part D. Under FSP 106-1, issued in January 2004,
we elected to defer recognizing the effect of the Act until the pending authoritative guidance on the accounting for the federal subsidy was issued.
71 Financial Statements
In May 2004, the FASB issued FSP 106-2, which provides guidance on accounting for the effects of the Act and also requires certain disclosures.
Under FSP 106-2, plan sponsors are required to determine whether their retiree drug coverage is actuarially equivalent to the Medicare Part D
coverage. Sponsors are also allowed the option of deferring recognition if it has not been concluded whether benefits under their plan are
actuarially equivalent to Medicare Part D. Regulations providing clarification about how to determine whether a sponsor's plan qualifies for
actuarial equivalency are pending until the U.S. Department of Health and Human Services completes its interpretative work on the Act. Without
clarifying regulations related to the Act, the Company has been unable to determine the extent to which the benefits provided by its plan are
actuarially equivalent to those under Medicare Part D; therefore, reported net periodic benefit cost does not reflect any amount associated with the
federal subsidy. When clarification is obtained, the Company will evaluate whether the benefits provided under its plan are actuarially equivalent.
As part of this evaluation, the Company may consider amending its retiree health program to coordinate with the new Medicare prescription drug
program or to receive the direct subsidy from the government.
If benefits provided by the plan are found to be actuarially equivalent to Medicare Part D, and the effects of the subsidy on the plan are significant,
the Company will perform a measurement of plan assets and obligations as of the date that actuarial equivalency is determined consistent with the
requirements of FSP 106-2. Any effect on the accumulated benefit obligation due to the subsidy shall be reflected as an actuarial gain. In addition,
the net periodic benefit cost for subsequent periods would reflect the effects of those measurements.
In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 amends
Accounting Research Bulletin No. 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted
materials (spoilage) should be recognized as current period charges. In addition, SFAS No. 151 requires that allocation of fixed production
overhead to inventory be based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. The Company has not assessed the impact that SFAS No. 151 will have on results of operations,
financial position or cash flows.
In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment,” which replaces SFAS No. 123, “Accounting for Stock-Based
Compensation” and supersedes Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees.” SFAS No.
123R rescinds the intrinsic value option for accounting for stock-based compensation under APB No. 25 and requires an entity to measure the
cost of employee service received in exchange for an award of equity instruments based on the grant date fair value of the award. In addition,
SFAS No. 123R modifies the treatment of subsequent changes in fair value of the award and forfeitures in determining compensation cost. SFAS
No. 123R is effective for the first interim or annual period that begins after June 15, 2005. As the Company currently accounts for its stock-based
compensation under the fair value provisions of SFAS No. 123, the Company will utilize the modified prospective application method upon
adoption. The Company has not assessed the impact that SFAS No. 123R will have on results of operations, financial position or cash flows.
In December 2004, the FASB issued FSP FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Repatriation Provision within the
American Jobs Creation Act of 2004.” FSP FAS 109-2 provides implementation guidance related to the repatriation provision of the American
Jobs Creation Act of 2004. The Company has not completed its assessment of whether, and to what extent, earnings of foreign subsidiaries
might be repatriated. The Company has complied with the disclosure requirements of FSP FAS 109-2 regarding its evaluation of the repatriation
provision for purposes of applying SFAS No. 109, “Accounting for Income Taxes.”
Financial Statements 72
NOTE 2. EARNINGS PER SHARE (“EPS”)
The following schedule is a reconciliation of the basic and diluted EPS computations:
(In millions, except per share data) Year Ended December 31,
2004 2003 2002
Basic earnings per share:
Income before the cumulative effect of a change in
accounting principle $116.7 $68.9 $ 57.8
Weighted average number of shares outstanding 67.6 66.1 65.3
Basic EPS before the cumulative effect of a change in
accounting principle $ 1.73 $1.04 $0.89
Diluted earnings per share:
Income before the cumulative effect of a change in
accounting principle $116.7 $68.9 $ 57.8
Weighted average number of shares outstanding 67.6 66.1 65.3
Effect of dilutive securities:
Options on common stock 1.2 0.5 0.6
Restricted stock 0.5 0.3 0.9
Total shares and dilutive securities 69.3 66.9 66.8
Diluted EPS before the cumulative effect of a change in
accounting principle $ 1.68 $1.03 $0.87
Options to purchase 2.4 million shares of the Company’s common stock outstanding at December 31, 2002, were excluded from the diluted EPS
calculation because the options’ exercise prices exceeded the average market price of the common shares for the period and, therefore, the effect
would be antidilutive.
NOTE 3. BUSINESS COMBINATIONS, DIVESTITURES AND ASSETS HELD FOR SALE
Business combinations
CDS Engineering--On August 20, 2003, the Company acquired a 55% ownership interest in CDS Engineering and associated assets (“CDS”) for
$50.0 million, and committed to purchase the remaining 45% ownership interest in CDS in 2009 at a purchase price of slightly less than 6.5 times
the average of 45% of CDS’ 2007 and 2008 earnings before interest expense, income taxes, depreciation and amortization. Headquartered in the
Netherlands, CDS is an industry leader in gas and liquids separation technology and equipment for surface applications, both onshore and
offshore. The Company believes that significant growth potential will be realized from incorporating CDS’ processing technology and experience
with the Company’s broad customer base. In addition, combining the acquired technology of CDS with the Company’s existing expertise in
subsea systems could lead to the development of subsea separation systems. CDS is included in the Energy Production Systems business
segment.
Net cash paid for the purchase of CDS was $44.2 million, which included acquisition-related costs of $0.7 million. The total acquisition cost of
$50.0 million reflected net cash paid plus long-term debt assumed of $6.9 million, less an adjustment of $1.1 million, reflecting the minority interest
in cash and long-term debt. The cash payment was funded through borrowings under the Company’s existing credit facilities. The Company
accounted for the acquisition as a purchase and included the results of operations of the acquired business in its consolidated financial statements
from the date of the acquisition.
73 Financial Statements
The following table summarizes the fair value of the assets acquired and the liabilities assumed at the date of the acquisition of CDS:
Fair value
(In millions)
Current assets, net of cash $ 8.8
Property, plant and equipment 2.1
Goodwill 21.9
Intangible assets 33.0
Total assets acquired 65.8
Current liabilities 9.6
Deferred income taxes 5.1
Long-term debt 6.9
Total liabilities 21.6
Net assets acquired $ 44.2
The acquired intangible assets consisted of the following:
Useful life
( in years) Fair value
(In millions)
Customer lists 25.0 $ 13.6
Patents and acquired technology 20.0 16.6
Trademarks 25.0 1.3
Other 7.5 1.5
Acquired intangible assets $ 33.0
All of the acquired intangible assets other than goodwill are subject to amortization, with a weighted-average useful life of approximately 22 years.
The goodwill is not deductible for income tax purposes.
RampSnake®--On November 26, 2003, the Company acquired 100% ownership of RampSnake A/S (“RampSnake”) from SAS, parent company
of Scandinavian Airlines, for $5.2 million. Incorporated under the laws of Denmark, RampSnake developed a baggage loading and unloading
product for narrow-body aircraft. The acquisition of RampSnake is expected to complement the Company’s existing aircraft loader product line,
which has primarily served the wide-body aircraft market. RampSnake is included in the Airport Systems business segment.
The purchase price for RampSnake of $5.2 million included acquisition-related costs of $0.2 million. Under the terms of the purchase agreement,
the Company paid $2.0 million to the seller on November 26, 2003, the closing date of the transaction, and made a second payment of $2.0
million in November 2004. The cash payments were funded through borrowings under the Company’s existing credit facilities. The remaining
purchase price of $1.0 million is payable to the seller in November 2005, and is included in other current liabilities on the Company’s December
31, 2004, consolidated balance sheet. The Company included the results of operations of the acquired business in its consolidated financial
statements from the effective date of the acquisition.
The fair value of current assets recorded at the acquisition date was $0.8 million. Goodwill relating to this transaction totaled $4.4 million, of which
$2.2 million is deductible for income tax purposes.
Had the acquisitions of CDS and RampSnake occurred at the beginning of the earliest period presented, the Company’s earnings per share would
not have been significantly different from the amounts reported. Accordingly, pro forma financial information has not been provided.
Divestitures
MODEC International LLC--The Company owned a 37.5% interest in MODEC International LLC, a joint venture investment with a subsidiary of
MODEC, Inc. The joint venture agreement gave the Company the right, beginning in May 2004, to elect to sell its interest in MODEC International
LLC for proceeds to be determined based on the relative contribution of the operating results of the joint venture to the income of MODEC, Inc. for
the preceding two fiscal years. At MODEC, Inc.’s option, the proceeds could consist of cash or shares of common stock of MODEC, Inc., or a
combination thereof.
Financial Statements 74
In July 2004, the Company communicated its decision to convert its joint venture investment and, in November 2004, it received proceeds from
MODEC, Inc., valued at $77.0 million in exchange for its interest in MODEC International LLC. The proceeds consisted of 3.0 billion yen, or $27.9
million, and 2.6 million common shares of MODEC, Inc., valued at $49.1 million. MODEC, Inc., common stock is listed on the Tokyo Stock
Exchange and traded in Japanese yen. The gain recorded by the Company in connection with the conversion amounted to $60.4 million ($36.1
million after tax). As of December 31, 2004, the Company owns 7.6% of the outstanding common shares of MODEC, Inc.
The Company accounted for its investment in MODEC International LLC, which was part of the Energy Production Systems business segment,
using the equity method of accounting. At December 31, 2003, the Company’s book value in the joint venture of $17.2 million was classified in
investments on the Company’s consolidated balance sheet.
Agricultural harvester machinery--During the fourth quarter of 2003, the Company divested its domestic agricultural harvester machinery product
line, which was included in the FoodTech business segment. Management had determined that the product line no longer fit within FoodTech’s
business strategy. In conjunction with the divestiture, the Company sold all of the assets, except for the real estate. The Company recorded an
impairment charge of $1.0 million related to the remaining real estate and a restructuring charge of $1.6 million, consisting of $1.1 million for
reduction in workforce and $0.5 million for contract termination and other costs. The Company completed the spending associated with this
restructuring program during the first quarter of 2004.
The total pre-tax impact of the divestiture of the domestic agricultural harvester machinery product line on 2003 income was a loss of $1.2 million,
which reflected the impairment and restructuring charges totaling $2.6 million offset by a gain of $1.4 million on the sale of assets. The pre-tax
impact was included in cost of sales and services on the Company’s consolidated statements of income.
Had the conversion of MODEC International LLC and the divestiture of the agricultural harvester machinery product line occurred at the beginning
of the earliest period presented, the Company’s earnings per share would not have been significantly different from the amounts reported
(excluding the gain on conversion). Accordingly, pro forma financial information has not been provided.
Assets held for sale
Measurement research and development--At December 31, 2003, other current assets included assets held for sale of $2.5 million associated
with research and development for one type of measurement technology, which management committed to sell in the fourth quarter of 2002.
Circumstances outside of the Company’s control extended the period of time that management had originally estimated would be required to
complete a sale. During the first quarter of 2004, a sale was no longer deemed probable within a one-year period, and assets included in the
group held for sale were redeployed for use within the Company. As a result, the asset group was reclassified from held for sale to held for use
and the Company recorded cumulative depreciation expense amounting to $0.5 million. Measurement research and development is included in
the Energy Processing Systems business segment.
Agricultural harvester machinery--At December 31, 2004 and 2003, other current assets included assets held for sale of $0.6 million, representing
real estate previously used in the Company’s domestic agricultural harvester machinery product line. In conjunction with the 2003 divestiture of
the product line, the Company sold the related assets except for the real estate, which continues to be actively marketed.
NOTE 4. ALLOWANCE FOR CONTRACT LOSS
The Company has a contract to supply a petroleum loading system to Sonatrach-TRC, the Algerian Oil and Gas Company (“Sonatrach”). During
the third and fourth quarters of 2004, the Company recorded provisions for anticipated losses on the Sonatrach contract amounting to $4.4 million
and $17.0 million, respectively, which were classified in cost of sales and services on the Company’s consolidated statements of income. The
Company increased its estimate of total costs to complete the Sonatrach project due primarily to delays caused by severe weather conditions at
the Algerian project site.
At December 31, 2004, current liabilities on the Company’s consolidated balance sheets included $5.8 million representing an allowance for these
anticipated losses in connection with the Sonatrach contract. The Company uses the percentage of completion method of accounting to
recognize revenue from this project, which is included in the Energy Production Systems business segment.
75 Financial Statements
NOTE 5. INVENTORIES
Inventories consisted of the following:
(In millions) December 31,
2004 2003
Raw materials $ 87.3 $ 79.3
Work in process 96.5 111.9
Finished goods 268.0 225.5
Gross inventories before LIFO reserves and valuation adjustments 451.8 416.7
LIFO reserves and valuation adjustments (135.5 ) (129.9 )
Net inventories $ 316.3 $ 286.8
Inventories accounted for under the LIFO method totaled $88.6 million and $84.9 million at December 31, 2004 and 2003, respectively. The
current replacement costs of LIFO inventories exceeded their recorded values by $90.2 million and $86.7 million at December 31, 2004 and 2003,
respectively. During 2004 and 2002, the Company reduced certain LIFO inventories which were carried at costs lower than the current
replacement costs. The result was a decrease in cost of sales and services by approximately $0.1 million and $0.3 million in 2004 and 2002,
respectively. There were no reductions of LIFO inventory in 2003.
NOTE 6. INVESTMENTS
In November 2004, in connection with the MODEC International LLC conversion (Note 3), the Company received 2.6 million shares of MODEC,
Inc., common stock, which is listed on the Tokyo Stock Exchange and traded in Japanese yen. The Company has designated this investment as
available-for-sale.
Equity securities available-for-sale
(In millions) Cost
Gross
unrealized gains
Gross unrealized
losses
Gross fair
value
As of:
December 31, 2004 $49.1 $10.1 $ - $59.2
Net unrealized gains on long-term investments (net of deferred taxes) included in accumulated other comprehensive loss amounted to $6.1 million
as of December 31, 2004. For the year ended December 31, 2004, the Company did not sell any equity securities, and thus there were no
realized gains or losses included in net income.
Financial Statements 76
NOTE 7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
(In millions) December 31,
2004 2003
Land and land improvements $ 19.2 $ 18.5
Buildings 161.9 148.4
Machinery and equipment 574.2 533.4
Construction in process 18.6 19.1
773.9 719.4
Accumulated depreciation (441.1 ) (391.5 )
Property, plant and equipment, net $ 332.8 $ 327.9
Depreciation expense was $53.5 million, $48.2 million, and $40.1 million in 2004, 2003 and 2002, respectively.
In March 2003, the Company elected to pay $35.9 million to repurchase equipment and terminate certain sale-leaseback obligations. The effect
on the Company’s consolidated balance sheet was an increase in property, plant and equipment of $15.0 million and a reversal of the $20.9
million in non-amortizing credits recognized in connection with the original transaction, which were included in other liabilities. Termination of these
sale-leaseback obligations did not have a material impact on the Company’s results of operations.
During 2003, one of the Company’s foreign subsidiaries implemented a functional currency change which resulted in a $12.4 million reduction in
property, plant and equipment, net, and the foreign currency translation adjustment in accumulated other comprehensive income (loss).
NOTE 8. GOODWILL AND INTANGIBLE ASSETS
On January 1, 2002, the Company adopted the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 addresses the
initial recognition and measurement of intangible assets acquired individually or as part of a group of other assets not constituting a business.
SFAS No. 142 also addresses the subsequent accounting for and continuing valuation of goodwill and other intangible assets.
Goodwill--During 2002, the carrying amount of goodwill was reduced to reflect the impairment loss recognized upon adoption of the new
accounting standard. The reported pre-tax impairment loss of $215.0 million ($193.8 million after tax) related to FoodTech ($117.4 million before
taxes; $98.3 million after tax) and Energy Processing Systems ($97.6 million before taxes; $95.5 million after tax). The after-tax impairment loss
was reflected as the cumulative effect of a change in accounting principle.
The impairment loss was calculated at the reporting unit level, and represents the excess of the carrying value of reporting unit goodwill over its
implied fair value. The implied fair value of goodwill was determined by a two-step process. The first compared the fair value of the reporting unit
(measured as the present value of expected future cash flows) to its carrying amount. If the fair value of the reporting unit was less than its carrying
amount, a second step was performed. In this step, the fair value of the reporting unit was allocated to its assets and liabilities to determine the
implied fair value of goodwill, which was used to measure the impairment loss. All of the Company’s reporting units were tested for impairment
during the first quarter of 2002 in conjunction with the implementation of SFAS No. 142.
The Company performs annual testing for impairment as required under SFAS No. 142. In connection with the evaluation prepared in the fourth
quarter of 2004, the Company recorded a non-cash goodwill impairment charge of $6.5 million ($6.1 million after tax) that eliminated all remaining
goodwill associated with the blending and transfer product line in the Energy Processing Systems business segment. The evaluation, which was
prepared using the methodology described above, indicated that the net book value of the blending and transfer unit exceeded its estimated fair
value. Blending and transfer experienced a lack of inbound orders for a sustained period of time, in part due to the volatility of oil and gas prices,
which reduced the willingness of oil companies to invest capital to upgrade existing blending facilities or to invest in new blending capacity.
77 Financial Statements
Goodwill by business segment was as follows:
(In millions) December 31,
2004 2003
Energy Production Systems $ 81.5 $ 76.9
Energy Processing Systems 10.7 17.3
Subtotal Energy Systems 92.2 94.2
FoodTech 15.6 15.1
Airport Systems 9.0 8.9
Total goodwill $116.8 $118.2
The change in the carrying value of goodwill in 2004 was related to the impairment recognized for the blending and transfer product line (in Energy
Processing Systems) and foreign currency translation adjustments.
Intangible assets--The components of intangible assets were as follows:
(In millions) December 31,
2004 2003
Gross carrying amount
Accumulated
amortization Gross carrying amount
Accumulated
amortization
Customer lists $ 31.1 $ 6.4 $31.2 $ 5.4
Patents and acquired technology 52.4 21.1 46.7 17.2
Trademarks 20.4 5.2 19.6 4.6
Other 1.9 1.1 1.5 0.6
Total intangible assets $105.8 $33.8 $99.0 $27.8
All of the Company’s acquired identifiable intangible assets are subject to amortization and, where applicable, foreign currency translation
adjustments. The Company recorded $4.8 million, $3.8 million and $2.5 million in amortization expense related to acquired intangible assets during
the years ended December 31, 2004, 2003 and 2002, respectively. During the years 2005 through 2009, annual amortization expense is expected
to be approximately $5.0 million.
NOTE 9. DEBT
During 2003, the Company renewed its 364-day $150.0 million revolving credit facility through April 2004. Additionally, the Company has a five-
year $250.0 million revolving credit facility maturing in April 2006. Among other restrictions, the terms of these credit agreements include negative
covenants related to liens and financial covenants related to consolidated tangible net worth, debt to earnings ratios and interest coverage ratios.
Both of the revolving credit facilities carried an effective interest rate of 100 basis points above the one-month London Interbank Offered Rate
(“LIBOR”), and together provided the Company with an aggregate of $400.0 million in committed credit.
In April 2004, the Company secured a five-year $250.0 million revolving credit facility maturing April 2009 to replace its 364-day $150.0 million
revolving credit facility upon maturity. The terms and covenants of the new facility are substantially similar to the existing five-year revolving credit
facility maturing in April 2006. The five-year revolving credit facility maturing April 2009 carries an effective interest rate of 87.5 basis points above
the one-month LIBOR. The Company is in compliance with all restrictive covenants on both revolving credit facilities as of December 31, 2004.
Both facilities are subject to various fees, which are based on the Company’s debt rating.
Available capacity under the revolving credit facilities maturing in 2006 and 2009 is reduced by outstanding letters of credit associated with these
facilities, which totaled $8.2 million and $7.8 million, respectively, as of December 31, 2004. Unused capacity under both revolving credit facilities
at December 31, 2004, totaled $334.2 million, consisting of $92.0 million under the revolving credit facility maturing in 2006 and $242.2 million
under the revolving credit facility maturing in 2009.
Financial Statements 78
Commercial paper--The Company initiated a commercial paper program in the first quarter of 2003 to provide an alternative vehicle for meeting
short-term funding requirements. Under this program and subject to available capacity under the Company’s revolving credit facilities, the
Company has the ability to access up to $400.0 million of short-term financing through its commercial paper dealers. Commercial paper
borrowings are issued at market interest rates. The Company enters into interest rate swap agreements to fix the interest rate (Interest Rate
Swaps section below).
Property financing--In September 2004, the Company entered into agreements for the sale and leaseback of an office building having a net book
value of $8.5 million. Under the terms of the agreement, the building was sold for $9.7 million in net proceeds and leased back under a 10-year
lease. The Company has subleased a portion of this property to a third party under a lease agreement that is being accounted for as an operating
lease. The Company has accounted for the transaction as a financing transaction, and is amortizing the related obligation using an effective annual
interest rate of 5.37%.
The Company’s future minimum lease payments under the terms of the sale-leaseback were $8.2 million as of December 31, 2004, and are
payable as follows: $0.9 million in each year from 2005 through 2009, and $4.0 million thereafter.
Uncommitted credit--The Company had uncommitted credit, consisting of two domestic money-market credit facilities totaling $20.0 million at
December 31, 2003. These facilities were terminated during 2004. In addition, the Company has uncommitted credit lines at many of its
international subsidiaries for immaterial amounts. The Company utilizes these facilities to provide a more efficient daily source of liquidity. The
effective interest rates depend upon the local national market. At December 31, 2003, $5.0 million was outstanding under the domestic
uncommitted credit facilities, with an effective interest rate of 1.7%.
Prior to its cancellation in October 2004, the Company had an uncommitted credit agreement with MODEC International LLC, a 37.5%-owned
joint venture, whereby MODEC International LLC loaned its excess cash to the Company. At December 31, 2003, short-term debt included $15.2
million of borrowings from MODEC International LLC. Under terms of the credit agreement, the interest rate was based on the monthly weighted-
average interest rate the Company paid on its domestic credit facilities and commercial paper, which was 1.3% at December 31, 2003.
Short-term debt and current portion of long-term debt--Short-term debt and current portion of long-term debt consisted of the following:
(In millions) December 31,
2004 2003
Property financing $0.3 $ -
Domestic uncommitted credit facilities - 5.0
Foreign uncommitted credit facilities 2.2 0.1
Borrowings from MODEC International LLC (joint venture) - 15.2
Other 0.2 0.1
Total short-term debt and current portion of long-term debt $2.7 $20.4
Long-term debt--Long-term debt consisted of the following:
(In millions) December 31,
2004 2003
Commercial paper (1) $149.8 $150.0
Five-year revolving committed credit facility - 50.0
Property financing 9.9 -
Other 1.2 1.2
Total long-term debt 160.9 201.2
Less: current portion (0.5 ) (0.1 )
Long-term debt, less current portion $160.4 $201.1
(1) Committed credit available under the five-year revolving credit facilities provides the ability to refinance the Company’s commercial
paper obligations on a long-term basis; therefore, at December 31, 2004 and 2003, the Company’s total commercial paper
borrowings were classified as long-term on the consolidated balance sheet.
79 Financial Statements
Maturities of total long-term debt as of December 31, 2004, are payable as follows: $0.5 million in 2005, $0.5 million in 2006, $0.5 million in 2007,
$0.5 million in 2008, $150.2 million in 2009 and $8.7 million thereafter.
Interest rate swaps--The Company has interest rate swaps related to $150.0 million of its commercial paper borrowings. The effect of these
interest rate swaps is to fix the effective annual interest rate of these borrowings at 2.9%. The swaps mature in June 2008, are accounted for as
cash flow hedges, and are included at fair value in other assets on the Company’s consolidated balance sheets at December 31, 2004 and 2003.
The Company also had an interest rate swap agreement that matured in June 2004, related to $50.0 million of its long-term borrowings, which
effectively fixed the interest rate thereon at 5.92%. The interest rate swap was accounted for as a cash flow hedge, and its fair value was included
in other current liabilities on the consolidated balance sheet at December 31, 2003.
NOTE 10. INCOME TAXES
Domestic and foreign components of income (loss) before income taxes and the cumulative effect of a change in accounting principle are shown
below:
(In millions) Year Ended December 31,
2004 2003 2002
Domestic $ 33.5 $(21.9) $(18.7)
Foreign 125.5 117.5 98.7
Income before income taxes and the cumulative effect of a
change in accounting principle $159.0 $ 95.6 $ 80.0
The provision for income taxes attributable to income before the cumulative effect of a change in accounting principle consisted of:
(In millions) Year Ended December 31,
2004 2003 2002
Current:
Federal $ (6.4) $ - $ -
State 1.0 - -
Foreign 56.6 23.2 7.2
Total current 51.2 23.2 7.2
Deferred:
Increase (decrease) in the valuation allowance for
deferred tax assets 0.4 (1.5) 1.2
Other deferred tax (benefit) expense (9.3 ) 5.0 13.8
Total deferred (8.9 ) 3.5 15.0
Provision for income taxes $ 42.3 $26.7 $22.2
Income tax expense in 2003 and 2002 was restated in connection with the 2004 change in accounting for stock-based compensation, resulting in
a reduction of income tax expense of $4.3 million and $4.0 million in 2003 and 2002, respectively.
Financial Statements 80
Significant components of the Company's deferred tax assets and liabilities were as follows:
(In millions) December 31,
2004 2003
Deferred tax assets attributable to:
Reserves for insurance, warranties and other $ 48.2 $ 37.7
Net operating loss carryforwards 36.1 39.2
Foreign tax credit carryforwards 20.7 18.1
Stock-based compensation 14.9 14.0
Inventories 11.4 12.1
Accrued pension and other postretirement benefits 10.2 28.5
Other 0.4 1.0
Deferred tax assets 141.9 150.6
Valuation allowance (17.9) (17.5 )
Deferred tax assets, net of valuation allowance 124.0 133.1
Deferred tax liabilities attributable to:
Revenue in excess of billings on contracts accounted for under the
percentage of completion method 36.6 48.0
Property, plant and equipment, goodwill and other assets 43.7 45.8
Deferred tax liabilities 80.3 93.8
Net deferred tax assets $ 43.7 $ 39.3
At December 31, 2004 and 2003, the carrying amount of net deferred tax assets and the related valuation allowance included the impact of
foreign currency translation adjustments.
Included in the Company’s deferred tax assets at December 31, 2004 are U.S. foreign tax credit carryforwards, which, if not utilized, will begin to
expire after 2011 and tax benefits related to U.S. net operating loss carryforwards, which, if not utilized, will begin to expire after 2021. Realization
of these deferred tax assets of $33.0 million is dependent on the generation of sufficient U.S. taxable income prior to the above dates. Based on
long-term forecasts of operating results, management believes that it is more likely than not that domestic earnings over the forecast period will
result in sufficient U.S. taxable income to fully realize such deferred tax assets. In its analysis, management has considered the effect of foreign
deemed dividends and other expected adjustments to domestic earnings that are required in determining U.S. taxable income. Foreign earnings
taxable to the Company as dividends, including deemed dividends for U.S. tax purposes, were $30.8 million, $30.3 million, and $24.9 million in
2004, 2003 and 2002, respectively. Also included in deferred tax assets are tax benefits related to net operating loss carryforwards attributable to
foreign entities. Management believes it is more likely than not that the Company will not be able to utilize certain of these operating loss
carryforwards before expiration; therefore, the Company has established a valuation allowance with regard to the related deferred tax assets.
By country, current and non-current deferred income taxes included in the Company’s consolidated balance sheet at December 31, 2004, were
as follows:
(In millions) December 31, 2004
Current asset Non-current asset
( liability) ( liability) Total
United States $ 33.1 $ 62.0 $ 95.1
Norway (35.8) 6.0 (29.8)
Brazil (2.2) (17.2) (19.4)
Netherlands 0.9 (3.6) (2.7)
Other foreign 0.7 (0.2 ) 0.5
Net deferred tax assets (liabilities) $ (3.3 ) $ 47.0 $ 43.7
81 Financial Statements
The effective income tax rate was different from the statutory U.S. federal income tax rate due to the following:
Year Ended December 31,
2004 2003 2002
Statutory U.S. federal income tax rate 35% 35% 35%
Net difference resulting from:
Foreign earnings subject to different tax rates (10) (10) (12)
Tax on foreign intercompany dividends and deemed dividends for tax
purposes 3 5 6
Settlement of tax dispute (4) - -
Nondeductible expenses 1 2 2
Qualifying foreign trade income (1) (1) (2)
State taxes 1 (1) -
Write off of nondeductible goodwill 1 - -
Change in valuation allowance and other 1 (2) (1)
Total difference (8 ) (7 ) (7 )
Effective income tax rate 27 % 28 % 28 %
The effective tax rate before the retroactive restatement for the 2004 change in accounting for stock-based compensation (Note 1) was 29% for
both 2003 and 2002.
The effective tax rate was 27% in 2004. Included in the 2004 provision for income taxes were tax benefits resulting from a favorable judgment in a
tax dispute with FMC Corporation, the Company’s former parent, and the resolution of foreign tax audits in the fourth quarter of 2004.
U.S. income taxes have not been provided on undistributed earnings of foreign subsidiaries. The cumulative balance of these undistributed
earnings was $466.3 million at December 31, 2004. It is not practicable to determine the amount of applicable taxes that would be incurred if any
of such earnings were repatriated.
On October 22, 2004, the American Jobs Creation Act (the “Act”) was signed into law. The Act creates a temporary incentive for U.S. corporations
to repatriate earnings of foreign subsidiaries by providing an 85% dividends received deduction for qualifying dividends. The deduction is subject
to a number of limitations and, as of this time, the correct interpretation of numerous provisions of the Act remains unclear. It is expected, but not
certain, that Congress will enact supplemental technical corrections legislation that will amend and/or clarify several technical aspects of the rules
sometime in 2005. As such, the Company is not currently in a position to determine whether, and to what extent, it might repatriate earnings of
foreign subsidiaries under the provisions of the Act. However, based on the Company’s analysis to date, a reasonable range of possible amounts
that the Company might repatriate is between $0 and $400 million, with a potential range of income tax liability of between $0 and $40 million.
FMC Corporation and FMC Technologies entered into a Tax Sharing Agreement in connection with FMC Corporation’s contribution to FMC
Technologies in June 2001 of substantially all of the assets and liabilities of, and its interests in, the businesses that comprise FMC Technologies
(the “Separation”). For tax years prior to 2002, the operations of the Company and its subsidiaries were included in the federal consolidated and
certain state and foreign tax returns of FMC Corporation. Pursuant to the terms of the Tax Sharing Agreement, the Company and its subsidiaries
are liable for all taxes for all periods prior to the Separation that are related to its operations, computed as if the Company and its subsidiaries were
a separate group filing its own tax returns for such periods. The Tax Sharing Agreement provides that the Company and FMC Corporation will
make payments between them as appropriate in order to properly allocate the group’s tax liabilities for pre-Separation periods.
The Tax Sharing Agreement placed certain restrictions upon FMC Technologies regarding the sale of assets, the sale or issuance of additional
securities (including securities convertible into stock) or the entry into some types of corporate transactions during a restriction period that
continued for 30 months after FMC Corporation’s distribution of its remaining 83% ownership of FMC Technologies’ common stock to FMC
Corporation’s shareholders in the form of a dividend (the “Distribution”) on January 1, 2002. These restrictions expired on July 1, 2004.
Financial Statements 82
FMC Corporation’s federal income tax returns for years through 1999 have been examined by the Internal Revenue Service and are closed for
federal income tax purposes. As a result of these examinations, the Company paid $4.2 million to FMC Corporation in 2002 pursuant to the terms
of the Tax Sharing Agreement. Management believes that adequate provision for income taxes has been made for remaining open tax years.
NOTE 11. RESERVE FOR DISCONTINUED OPERATIONS
The reserve for discontinued operations amounted to $6.9 million and $12.9 million at December 31, 2004 and 2003, respectively, and represents
the Company’s estimate of its liability for claims associated with equipment manufactured by FMC Corporation’s discontinued machinery
businesses, as defined in the Separation and Distribution Agreement (Note 17). Among the discontinued businesses are the construction
equipment group and the power control, beverage, marine and rail divisions.
There were no increases to the reserve for discontinued operations during the three-year period ended December 31, 2004. Payments amounted
to $5.9 million, $5.2 million and $5.3 million for the years ended December 31, 2004, 2003 and 2002, respectively, and were related to product
liability claims, insurance premiums and fees for claims administration. The product liability claims were primarily associated with cranes that were
manufactured by the construction equipment group.
The Company is self insured against product liability risk for its discontinued operations, but maintains insurance coverage that limits its exposure
to $2.75 million per individual product liability claim.
It is possible that the Company’s liability associated with discontinued operations could differ from the recorded reserve. The Company cannot
predict with certainty the outcome of legal proceedings or amounts of future cash flows; however, it believes that the costs associated with the
resolution of all liabilities related to discontinued operations will not result in a material adverse effect on the Company’s consolidated financial
position or results of operations.
NOTE 12. PENSIONS AND POSTRETIREMENT AND OTHER BENEFIT PLANS
The Company has funded and unfunded defined benefit pension plans that together cover substantially all of its U.S. employees. The plans
provide defined benefits based on years of service and final average salary. Foreign-based employees are eligible to participate in Company-
sponsored or government-sponsored benefit plans to which the Company contributes. One of the foreign defined benefit pension plans
sponsored by the Company provides for employee contributions; the remaining plans are noncontributory.
The Company has other postretirement benefit plans covering substantially all of its U.S. employees who were hired prior to January 1, 2003. The
postretirement health care plans are contributory; the postretirement life insurance plans are noncontributory.
Effective January 1, 2003, the Company’s benefit obligation under the postretirement health care plan was fully capped at the 2002 benefit level,
which resulted in a reduction in the benefit obligation and annual benefit cost of $1.8 million and $0.4 million, respectively. In addition, in
September 2002, the Company announced changes to other postretirement benefits effective January 1, 2003. These changes resulted in a
reduction in the benefit obligation and annual benefit cost of $7.5 million and $1.8 million, respectively.
The Company has adopted the provisions of SFAS No. 87, “Employers’ Accounting for Pensions,” for its domestic pension plans as well as for
many of its non-U.S. plans, including those covering employees in the United Kingdom, Norway, Canada and Germany. Pension expense
measured in compliance with SFAS No. 87 for the other non-U.S. pension plans is not materially different from the locally reported pension
expense. The locally reported pension expense for the other non-U.S. plans amounted to $4.2 million, $3.7 million and $3.1 million for 2004, 2003
and 2002, respectively.
In 2004, the Company included the plans covering employees in Norway, Sweden and France in its pension disclosures. The funded status and
net periodic pension cost disclosures for 2003 and 2002 have been revised to include the Norwegian plan amounts. The opening projected
benefit obligation for the plans in Sweden and France of $12.5 million is reflected in the plan transition caption of the December 31, 2004 funded
status table. These disclosure changes did not impact the pension liabilities and expense reported for 2003 or 2002.
The Company uses a December 31 measurement date for the majority of its defined benefit pension and other postretirement benefit plans.
83 Financial Statements
The funded status of the Company's U.S. qualified and nonqualified pension plans, certain foreign pension plans and U.S. postretirement health
care and life insurance benefit plans, together with the associated balances recognized in the Company's consolidated financial statements as of
December 31, 2004 and 2003, were as follows:
Other
postretirement
(In millions) Pensions benefits
2004 2003 2004 2003
Accumulated benefit obligation $ 564.2 $ 482.9
Projected benefit obligation at January 1 $ 561.4 $ 478.4 $ 37.1 $ 34.0
Service cost 22.8 18.6 0.6 0.7
Interest cost 35.1 30.8 2.1 2.2
Actuarial (gain) loss 28.4 36.2 (2.1) 4.3
Amendments - 0.4 - (1.8)
Plan transition 12.5 - - -
Foreign currency exchange rate changes 13.7 12.8 - -
Plan participants' contributions 1.6 1.3 3.1 3.0
Benefits paid (18.6 ) (17.1 ) (6.5 ) (5.3 )
Projected benefit obligation at December 31 656.9 561.4 34.3 37.1
Fair value of plan assets at January 1 469.6 359.3 - -
Actual return on plan assets 59.5 92.0 - -
Foreign currency exchange rate changes 10.9 8.9 - -
Company contributions 44.2 25.2 3.4 2.3
Plan participants' contributions 1.6 1.3 3.1 3.0
Benefits paid (18.6) (17.1 ) (6.5) (5.3 )
Fair value of plan assets at December 31 567.2 469.6 - -
Funded status of the plans (liability) (89.7) (91.8) (34.3) (37.1)
Unrecognized actuarial loss 120.6 111.9 4.9 7.3
Unrecognized prior service cost (income) 2.7 3.5 (9.2) (10.9)
Unrecognized transition asset (4.7 ) (4.8 ) - -
Net amounts recognized in the consolidated
balance sheets at December 31 $ 28.9 $ 18.8 $(38.6 ) $(40.7 )
Accrued pension and other postretirement benefits (10.7) $ (18.0) $(38.6) $(40.7)
Other assets 0.7 0.7 - -
Accumulated other comprehensive loss 38.9 36.1 - -
Net amounts recognized in the consolidated
balance sheets at December 31 $ 28.9 $ 18.8 $(38.6 ) $(40.7 )
The following table presents aggregated information for individual pension plans with a benefit obligation in excess of plan assets:
December 31,
(In millions) 2004 2003
Benefit obligation $653.4 $527.4
Fair value of plan assets $563.3 $432.4
Financial Statements 84
The following table presents aggregated information for individual pension plans with an accumulated benefit obligation in excess of plan assets:
December 31,
(In millions) 2004 2003
Accumulated benefit obligation $175.1 $137.6
Fair value of plan assets $114.6 $ 89.4
The table below summarizes the changes, on a pre-tax basis, in the gross minimum pension liability included in other comprehensive loss:
(In millions) Year Ended December 31,
2004 2003
Increase (decrease) in minimum pension liability $2.8 $ (20.6)
The following weighted-average assumptions were used to determine the benefit obligations:
Other
postretirement
Pensions benefits
2004 2003 2004 2003
Discount rate 5.82% 6.06% 6.00% 6.25%
Rate of compensation increase 3.94% 3.91% - -
The weighted average discount rate for pensions declined from 6.06% in 2003 to 5.82% in 2004, which increased the projected benefit obligation
by $22.5 million. As part of this change, the discount rate used in determining U.S. pension and other postretirement benefit obligations
decreased from 6.25% in 2003 to 6.0% in 2004, increasing the projected benefit obligation by $16.8 million. In the prior year, the discount rate
used in determining U.S. pension and other postretirement benefit obligations, decreased from 6.75% in 2002 to 6.25% in 2003, which increased
the projected benefit obligation by $29.9 million.
The Company’s pension plan asset allocation, by asset category, was as follows:
(Percent of plan assets) December 31,
2004 2003
Equity securities 82.8% 81.1%
Debt securities 3.5 4.1
Insurance contracts 7.8 7.3
Cash 4.4 7.0
Other 1.5 0.5
Total 100.0% 100.0 %
The Company’s pension investment strategy emphasizes maximizing returns, consistent with ensuring that sufficient assets are available to meet
liabilities, and minimizing corporate cash contributions. Investment managers are retained to invest 100% of discretionary funds and are provided a
high level of freedom in asset allocation. Targets include: generating returns exceeding the change in the S&P 500 index by 200 basis points, net
of fees; performing in the top quartile of all large U.S. pension plans; and obtaining an absolute rate of return at least equal to the discount rate
used to value plan liabilities.
The Company expects to contribute approximately $25 million to its pension plans in 2005. Of this amount, $15 million will be contributed to the
U.S. qualified pension plan, which does not have minimum funding requirements for 2005. The entire contribution will be made at the Company’s
discretion. The remaining $10 million will be contributed to the U.K. and Norway qualified pension plans and the U.S. non-qualified pension plan.
All of the contributions are expected to be in the form of cash. In 2004 and 2003, the Company contributed $44.2 million and $25.2 million to the
pension plans, respectively, which included $30.0 million and $15.0 million, respectively, to the domestic qualified pension plan.
85 Financial Statements
Estimated future benefit payments--The following table summarizes expected benefit payments from the Company’s various pension and
postretirement benefit plans through 2014. Actual benefit payments may differ from expected benefit payments.
Other
postretirement
(In millions) Pensions benefits
2005 $ 21.1 $ 3.0
2006 22.8 3.0
2007 24.9 3.1
2008 26.6 3.1
2009 29.1 3.2
2010-2014 179.8 16.0
The following table summarizes the components of net periodic benefit cost:
Other
postretirement
(In millions) Pensions benefits
2004 2003 2002 2004 2003 2002
Components of net annual benefit cost:
Service cost $ 22.8 $ 18.6 $ 16.8 $ 0.6 $ 0.7 $ 0.8
Interest cost 35.1 30.8 28.9 2.1 2.2 2.6
Expected return on plan assets (40.4) (35.0) (34.1) - - -
Amortization of transition asset 1.0 (0.5) (0.5) - - -
Amortization of prior service
cost (benefit) 1.0 1.0 0.9 (1.6) (2.2) (3.3)
Recognized net loss 5.7 3.0 1.7 0.2 0.4 0.1
Net annual benefit cost $ 25.2 $ 17.9 $ 13.7 $ 1.3 $ 1.1 $ 0.2
The following weighted-average assumptions were used to determine net periodic benefit cost:
Other
postretirement
Pensions benefits
2004 2003 2002 2004 2003 2002
Discount rate 6.06% 6.51% 6.81% 6.25% 6.75% 7.00%
Rate of compensation increase 3.91% 3.96% 4.10% - - -
Expected rate of return on plan assets 8.57% 8.58% 9.15% - - -
Prior service costs are amortized on a straight-line basis over the average remaining service period of employees eligible to receive benefits under
the plan.
The expected rate of return on plan assets is a critical accounting estimate because of its potential variability and significant impact on the
amounts reported. The Company’s estimate is based primarily on the historical performance of plan assets, current market conditions and long-
term growth expectations. On trailing five-year and trailing ten-year bases, actual returns on plan assets have exceeded the 2004 and 2005
expected rates of return.
In 2003, the weighted average expected rate of return on plan assets was reduced from 9.15% to 8.58% to reflect current market conditions,
which increased the 2003 net annual benefit cost by $2.0 million. The change in the expected rate of return on plan assets was driven by the rate
used in determining U.S. periodic benefit cost, which decreased from 9.25% in 2002 to 8.75% in 2003. Fluctuations in the expected rate of return
on plan assets in 2002 and 2004 did not have a material impact on the periodic benefit cost recognized.
For measurement purposes, 8.0% and 9.0% increases in the per capita cost of health care benefits for pre-age 65 retirees and post-age 65
retirees are assumed for 2005. The rates of increase are forecast to decrease gradually to 6.0% in 2009 and remain at that level thereafter.
Financial Statements 86
Assumed health care cost trend rates will not have an effect on the amounts reported for the postretirement health care plan since the Company’s
benefit obligation under the plan was fully capped at the 2002 benefit level. Accordingly, a one percentage point change in the assumed health
care cost trend rates would not have a significant effect on total service and interest costs or on the Company’s postretirement health care
obligation under this plan.
On December 8, 2003, President Bush signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the
“Medicare Act”). The Medicare Act introduces a prescription drug benefit under Medicare (“Medicare Part D”) as well as a federal subsidy to
sponsors of retiree health care benefit plans that provide a prescription drug benefit that is at least actuarially equivalent to Medicare Part D.
The Company has chosen to defer recognition of the potential effects of the Medicare Act in 2004 because the Company has not concluded
whether benefits under its plan are actuarially equivalent to Medicare Part D. Clarifying authoritative guidance to be issued by the U.S. Department
of Health and Human Services on determining the extent to which the plan benefits are actuarially equivalent to those under Medicare Part D is
pending. Therefore, the retiree health obligations and costs reported in the Company’s consolidated financial statements do not yet reflect any
potential impact of the Medicare Act.
The FMC Technologies, Inc. Savings and Investment Plan, a qualified salary reduction plan under Section 401(k) of the Internal Revenue Code, is a
defined contribution plan. The Company recognized expense of $9.7 million, $8.0 million and $7.9 million, for matching contributions to this plan
in 2004, 2003 and 2002, respectively.
NOTE 13. STOCK-BASED COMPENSATION
The FMC Technologies, Inc. Incentive Compensation and Stock Plan (the "Plan") provides certain incentives and awards to officers, employees,
directors and consultants of the Company or its affiliates. The Plan allows the Board of Directors of the Company (the "Board") to make various
types of awards to non-employee directors and the Compensation Committee (the "Committee") of the Board to make various types of awards to
other eligible individuals.
Awards include management incentive awards, common stock, stock options, stock appreciation rights, restricted stock and stock units. All
awards are subject to the Plan's provisions.
An aggregate of 16.5 million shares of the Company's common stock are authorized to be granted to participants in the Plan, subject to a
maximum of 8.0 million shares for grants of restricted stock, common stock and stock units. Of the 16.5 million shares, 12.0 million shares were
authorized under the Plan. The remaining 4.5 million shares were made available to satisfy awards previously granted by FMC Corporation which
were replaced with awards issuable in shares of the Company's common stock. At December 31, 2004, approximately 7.4 million shares were
available for future grants under the Plan.
Management incentive awards may be awards of cash, common stock options, restricted stock or a combination thereof. Grants of common
stock options may be incentive and/or nonqualified stock options. Under the plan, the exercise price for options cannot be less than the market
value of the Company's common stock at the date of grant. Options vest in accordance with the terms of the award as determined by the
Committee and expire not later than 10 years after the grant date. Restricted stock grants specify any applicable performance goals, the time and
rate of vesting and such other provisions as determined by the Committee.
Stock-based compensation awards to non-employee directors consist of stock units, restricted stock and common stock options. Awards
generally vest on the date of the Company’s annual stockholder meeting following the date of grant. Stock options are not exercisable, and
restricted stock and stock units are not issued, until a director ceases services to the Board. At December 31, 2004, outstanding awards to active
and retired non-employee directors included 17.4 thousand vested stock options and 127.7 thousand stock units.
87 Financial Statements
The following shows stock option activity for the three years ended December 31, 2004:
Weighted-
Shares average
under exercise
(Number of shares in thousands) option price
December 31, 2001 2,363 $20.00
Issued to replace FMC Corporation options (1) 3,248 $16.04
Granted with exercise price equal to fair value 527 $17.35
Exercised (136) $15.55
Forfeited (133 ) $19.08
December 31, 2002 5,869 $17.70
Granted with exercise price equal to fair value 811 $19.39
Exercised (561) $13.46
Forfeited or expired (187 ) $19.16
December 31, 2003 5,932 $18.28
Granted with exercise price equal to fair value 453 $25.22
Exercised (2,272) $17.01
Forfeited or expired (6 ) $18.66
December 31, 2004 4,107 $19.75
(1) Effective as of January 1, 2002, following the Distribution (Note 10), certain employees and non-employee directors of the Company
who held options to purchase FMC Corporation stock received replacement options to purchase stock of the Company. These
replacement stock options are included in the disclosures herein and in the calculation of diluted shares outstanding for 2002.
There were 2.4 million, 2.4 million and 2.6 million options exercisable at December 31, 2004, 2003 and 2002, respectively. The weighted-average
exercise prices of these options were $19.31, $16.41 and $16.18 at December 31, 2004, 2003 and 2002, respectively.
Information regarding options outstanding and exercisable at December 31, 2004, is summarized as follows:
(Number of shares in
thousands)
Options outstanding Options exercisable
Weighted-
average Weighted- Weighted-
remaining average average
Range of Number contractual life exercise Number exercise
exercise prices of shares ( in years) price of shares price
$ 12.00 - $15.00 150 4.0 $13.12 150 $13.12
$ 15.01 - $22.00 3,504 6.4 $19.33 2,220 $19.73
$ 22.01 - $30.00 453 9.2 $25.22 - -
Total 4,107 6.6 $19.75 2,370 $19.31
On January 2, 2005, approximately 480 thousand options became exercisable at a weighted-average exercise price per share of $17.35 with
expiration in February 2012.
Financial Statements 88
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-
average assumptions used for grants in 2004, 2003 and 2002:
2004 2003 2002
Risk-free interest rate 3.1% 2.9% 4.3%
Stock volatility 35.1% 46.8% 45.6%
Expected life in years 5 5 5
Expected dividend yield - - -
Weighted-average fair value of options granted $9.07 $8.59 $7.88
The following summarizes restricted stock awards, including stock unit awards, and the weighted-average fair value of the shares granted during
each of the years in the three-year period ended December 31, 2004:
(Number of shares in thousands) 2004 2003 2002
Shares granted 497 351 213
Weighted-average fair value $25.87 $19.69 $19.69
Total compensation cost recognized in the consolidated statements of income for stock-based compensation awards was $12.3 million, $15.2
million and $16.0 million in 2004, 2003 and 2002, respectively.
NOTE 14. STOCKHOLDERS' EQUITY
Capital stock--The following is a summary of the Company’s capital stock activity during each of the years in the three-year period ended
December 31, 2004:
Common stock
Common held in employee
(Number of shares in thousands) stock benefit trust
December 31, 2001 65,091 86
Stock awards 439 -
Net stock purchased for employee benefit trust - 60
December 31, 2002 65,530 146
Stock awards 875 -
Net stock purchased for employee benefit trust - 18
December 31, 2003 66,405 164
Stock awards 2,399 -
Net stock sold from employee benefit trust - (57)
December 31, 2004 68,804 107
The plan administrator of the FMC Technologies, Inc. Non-Qualified Savings and Investment Plan purchases shares of the Company's common
stock on the open market. Such shares are placed in a trust owned by the Company.
At December 31, 2004, approximately 12.7 million shares of unissued common stock were reserved for future and existing stock awards.
On December 7, 2001, the Company’s Board of Directors authorized the Company to repurchase up to 2.0 million common shares in the open
market for general corporate purposes. No shares had been repurchased under this authorization as of December 31, 2004.
No cash dividends were paid on the Company’s common stock in 2004, 2003 or 2002. The amount of cash dividends the Company would be
permitted to declare is subject to restriction under certain circumstances in accordance with the Company’s credit facilities.
89 Financial Statements
On June 7, 2001, the Board of Directors of the Company declared a dividend distribution to each recordholder of common stock of one Preferred
Share Purchase Right for each share of common stock outstanding at that date. Each right entitles the holder to purchase, under certain
circumstances related to a change in control of the Company, one one-hundredth of a share of Series A junior participating preferred stock,
without par value, at a price of $95 per share (subject to adjustment), subject to the terms and conditions of a Rights Agreement dated June 5,
2001. The rights expire on June 6, 2011, unless redeemed by the Company at an earlier date. The redemption price of $0.01 per right is subject
to adjustment to reflect stock splits, stock dividends or similar transactions. The Company has reserved 800,000 shares of Series A junior
participating preferred stock for possible issuance under the agreement.
Accumulated other comprehensive income (loss)--Accumulated other comprehensive income (loss) consisted of the following:
(In millions) December 31,
2004 2003
Cumulative foreign currency translation adjustments $ (48.2) $(86.0)
Cumulative deferral of hedging gains, net of tax 7.7 5.6
Cumulative minimum pension liability adjustments, net of tax (26.6) (24.9)
Unrealized gain on available-for-sale investment, net of tax 6.1 -
Accumulated other comprehensive loss $ (61.0 ) $(105.3 )
Included in the foreign currency translation adjustment recorded in 2003 was a $12.8 million loss related to the cumulative effect of a change in
functional currency of a foreign subsidiary, of which $12.4 million represented a reduction in property, plant and equipment, net.
NOTE 15. FOREIGN CURRENCY
The aggregate foreign currency transaction gain, net of gains or losses on forward exchange contracts, included in determining net income was
$3.4 million, $0.9 million and $1.6 million in the years ended December 31, 2004, 2003 and 2002, respectively.
During 2004, 2003 and 2002, the Company's earnings were positively affected by translation of the Company's foreign currency-denominated
sales, partly offset by the effect of paying certain local operating costs in the same foreign currencies. This positive translation impact was the
result of the U.S. dollar weakening against many foreign currencies, primarily the euro, the Norwegian krone, the Swedish krona and the British
pound.
NOTE 16. DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Derivative financial instruments--The Company uses derivative instruments to manage its foreign exchange and interest rate risk. Company policy
allows for the use of derivative financial instruments only for identifiable exposures and, therefore, the Company does not enter into derivative
instruments for trading purposes where the objective is to generate profits. At December 31, 2004 and 2003, derivative financial instruments
consisted primarily of foreign currency forward contracts and interest rate swap contracts.
With respect to foreign currency exchange rate risk, the Company’s objective is to limit potential volatility in functional currency based earnings or
cash flows from foreign currency exchange rate movements. The Company’s foreign currency exposures arise from transactions denominated in a
currency other than an entity's functional currency, primarily in connection with anticipated purchases and sales, and the settlement of receivables
and payables. The primary currencies to which the Company is exposed include the Brazilian real, the British pound, the euro, the Japanese yen,
the Norwegian krone, the Singapore dollar, the Swedish krona, and the U.S. dollar.
Derivative contracts are executed centrally from the Company’s corporate office, except in certain emerging markets where local trading is more
efficient. For anticipated transactions, the Company enters into external derivative contracts which individually correlate with each exposure in
terms of currency and maturity, and the amount of the contract does not exceed the amount of the exposure being hedged. For foreign currency
exposures recorded on the Company’s consolidated balance sheet, such as accounts receivable or payable, the Company evaluates and
monitors consolidated net exposures, and ensures that external derivative financial instruments correlate with that net exposure in all material
respects.
With respect to interest rate risk, the Company’s objective is to limit its exposure to fluctuations in market interest rates related to debt. To meet
this objective, management enters into interest rate swap agreements, which either change the variable cash flows on debt obligations to fixed
cash flows or vice versa. The Company continually assesses interest rate cash flow risk by monitoring changes in interest rate exposures that may
adversely impact expected future cash flows attributable to the Company’s outstanding or forecasted debt obligations.
Financial Statements 90
The following table summarizes the fair value of derivative instruments the Company had recognized in its consolidated balance sheets as of
December 31, 2004 and 2003. These fair values reflect the estimated net amounts that the Company would receive or pay if it terminated the
contracts at the reporting date based on quoted market prices of comparable contracts at those dates.
(In millions) Foreign currency exchange contracts Interest rate swap agreements
December 31, December 31,
2004 2003 2004 2003
Other current assets $ 37.6 $ 31.4 $ - $ -
Other assets $ 2.8 $ 0.3 $ 5.2 $ 4.8
Other current liabilities $ 27.9 $ 5.9 $ - $ 0.9
Other liabilities $ 3.2 $ 3.9 $ - $ -
At December 31, 2004, the net deferred hedging gain in accumulated other comprehensive income (loss) was $7.7 million, of which a net gain of
$4.8 million is expected to be recognized in earnings during the twelve months ending December 31, 2005, at the time the underlying hedged
transactions are realized, and a net gain of $2.9 million is expected to be recognized at various times from January 1, 2006 through November 30,
2012. At December 31, 2003, the net deferred hedging gain in accumulated other comprehensive income (loss) was $5.6 million.
Hedge ineffectiveness and the portion of derivative gains or losses excluded from assessments of hedge effectiveness related to the Company’s
outstanding cash flow hedges, amounted to net gains of approximately $0.6 million, $0.6 million and $0.5 million, respectively, for the years ended
December 31, 2004, 2003 and 2002. These amounts were included in cost of sales and services on the Company’s statements of income.
Fair value disclosures--The carrying amounts of cash and cash equivalents, trade receivables, accounts payable, short-term debt, commercial
paper, and debt associated with revolving credit facilities, as well as amounts included in other current assets and other current liabilities that meet
the definition of financial instruments, approximate fair value because of their short-term maturities. Investments and derivative financial
instruments are carried at fair value, determined using available market information.
Credit risk--By their nature, financial instruments involve risk, including credit risk for non-performance by counterparties. Financial instruments
that potentially subject the Company to credit risk primarily consist of trade receivables and derivative contracts. The Company manages its credit
risk on financial instruments by dealing with financially secure counterparties, requiring credit approvals and credit limits, and monitoring
counterparties’ financial condition. The Company’s maximum exposure to credit loss in the event of non-performance by the counterparty is
limited to the amount drawn and outstanding on the financial instrument. Allowances for losses are established based on collectibility
assessments.
NOTE 17. RELATED PARTY TRANSACTIONS
FMC Corporation--FMC Technologies was a subsidiary of FMC Corporation until the Distribution of FMC Technologies’ common stock by FMC
Corporation on December 31, 2001.
FMC Technologies and FMC Corporation entered into certain agreements which defined key provisions related to the Separation and the ongoing
relationship between the two companies after the Separation. These agreements included a Separation and Distribution Agreement (“SDA”) and a
Tax Sharing Agreement.
As parties to the SDA, FMC Corporation and FMC Technologies each indemnify the other party from liabilities arising from their respective
businesses or contracts, from liabilities arising from breach of the SDA, from certain claims made prior to the spin-off of the Company from FMC
Corporation, and for claims related to discontinued operations (Note 19).
The Tax Sharing Agreement (Note 10) provided that FMC Technologies and FMC Corporation would make payments between them as
appropriate in order to properly allocate tax liabilities for pre-Separation periods. During 2002, the Company paid $4.2 million to FMC Corporation
relating to income tax liabilities for pre-Separation periods.
During 2004, the Company received $6.9 million from FMC Corporation as a result of a judgment in a tax dispute that arose in connection with the
Separation (Note 10).
91 Financial Statements
MODEC International LLC and MODEC, Inc.--Until its cancellation in October 2004, the Company had an uncommitted credit agreement with
MODEC International LLC, a 37.5%-owned joint venture, whereby MODEC International LLC loaned its excess cash to the Company (Note 9).
MODEC, Inc., the parent of the Company’s joint venture partner in MODEC International LLC, completed an initial public offering of approximately
11% of its common stock on the Tokyo Stock Exchange in July 2003. Beginning in May 2004, the Company had an annual right to convert its
joint venture interest in MODEC International LLC into shares of common stock of MODEC, Inc., or, at MODEC, Inc.'s option, a combination of
cash and common stock with total equivalent value. During 2004, the Company elected to exchange its interest in MODEC International LLC
under terms of the joint venture agreement (Note 3).
NOTE 18. WARRANTY OBLIGATIONS
The Company provides for the estimated cost of warranties at the time revenue is recognized and when additional specific obligations are
identified. The obligation reflected in the consolidated balance sheets is based on historical experience by product, and considers failure rates and
the related costs incurred in correcting a product failure. The Company believes its methodology provides a reasonable estimate of its liability.
Warranty cost and accrual information is as follows:
(In millions) 2004 2003
Balance at beginning of year $ 10.5 $ 11.9
Expenses for new warranties 17.8 16.9
Reversals of warranty reserves (2.5) (3.3)
Claims paid (13.1 ) (15.0 )
Balance at end of year $ 12.7 $ 10.5
NOTE 19. COMMITMENTS AND CONTINGENT LIABILITIES
Commitments--The Company leases office space, manufacturing facilities and various types of manufacturing and data processing equipment.
Leases of real estate generally provide for payment of property taxes, insurance and repairs by the Company. Substantially all leases are classified
as operating leases for accounting purposes. Rent expense under operating leases amounted to $35.0 million, $30.8 million and $28.5 million, in
2004, 2003 and 2002, respectively.
Minimum future rental payments under noncancelable operating and capital leases amounted to approximately $130.2 million as of December 31,
2004, and are payable as follows: $28.6 million in 2005, $21.4 million in 2006, $17.5 million in 2007, $15.5 million in 2008, $14.1 million in 2009
and $33.1 million thereafter. Minimum future rental payments to be received under noncancelable subleases totaled $6.1 million at December 31,
2004.
Under the terms of the CDS acquisition (Note 3), the Company committed to purchase the remaining 45% ownership interest in CDS in 2009 at a
purchase price of slightly less than 6.5 times the average of 45% of CDS’ 2007 and 2008 earnings before interest expense, income taxes,
depreciation and amortization. The Company intends to account for the purchase of the remaining 45% ownership interest in CDS under the
purchase method.
Contingent liabilities associated with guarantees--In the ordinary course of business with customers, vendors and others, the Company issues
standby letters of credit, performance bonds, surety bonds and other guarantees. These financial instruments, which totaled approximately $440
million at December 31, 2004, represented guarantees of the Company’s future performance. The Company had also provided approximately
$52 million of bank guarantees and letters of credit to secure existing financial obligations of the Company. The majority of these financial
instruments expire within two years; the Company expects to replace them through the issuance of new or the extension of existing letters of
credit and surety bonds.
At December 31, 2004, the Company also had guarantees relating to third party financial obligations of approximately $2 million. This includes a
$1.5 million guarantee issued by the Company for the debt of one of its customers. This guarantee expires in January 2006. At December 31,
2004, the maximum potential amount of undiscounted future payments that the Company could be required to make under this guarantee is $1.5
million. Should the Company be required to make any payments under this guarantee, it may rely upon its security interest (consisting of a second
mortgage) in certain of the customer’s real estate to satisfy the guarantee. Management believes that proceeds from foreclosure are likely to cover
a substantial portion of the maximum potential amount of future payments that could be required under the guarantee. Any deficiency payment
required is not likely to be material to the Company’s results of operations.
Financial Statements 92
The Company was primarily liable for an Industrial Development Revenue Bond payable to Franklin County, Ohio, until the obligations under the
bond were assigned to a third party when the Company sold the land securing the bond. At December 31, 2004, the maximum potential amount
of undiscounted future payments that the Company could be required to make under this bond is $5.4 million through final maturity in October
2009. Should the Company be required to make any payments under the bond, it may recover the property from the current owner, sell the
property and use the proceeds to satisfy its payments under the bond. Management believes that proceeds from the sale of the property would
cover a substantial portion of any potential future payments required.
The Company's management believes that the ultimate resolution of its known contingencies will not materially affect the Company’s consolidated
financial position or results of operations.
Contingent liabilities associated with legal matters--The Company and FMC Corporation are named defendants in a number of multi-defendant,
multi-plaintiff tort lawsuits. Under the SDA (Note 17), FMC Corporation is required to indemnify the Company for certain claims made prior to the
spin-off of the Company from FMC Corporation, as well as for other claims related to discontinued operations. The Company expects that FMC
Corporation will bear responsibility for the majority of these claims. Certain claims have been asserted subsequent to the spin-off. While the
ultimate responsibility for these claims cannot yet be determined due to lack of identification of the products or premises involved, the Company
also expects that FMC Corporation will bear responsibility for a majority of these claims.
In February 2003, the Company initiated court action in the Judicial District Court in Harris County, Texas, against ABB Lummus Global, Inc.
(“ABB”), seeking recovery of scheduled payments owed and compensatory, punitive and other damages. In October 2004, ABB filed a petition to
remove the case to federal court. In February 2005, the United States District Court Southern District set the matter for trial beginning in the fourth
quarter of 2005.
While the results of litigation cannot be predicted with certainty, management believes that the most probable, ultimate resolution of these matters
will not have a material adverse effect on the Company’s consolidated financial position or results of operations.
NOTE 20. BUSINESS SEGMENTS
The Company’s determination of its four reportable segments was made on the basis of its strategic business units and the commonalities among
the products and services within each segment, and corresponds to the manner in which the Company’s management reviews and evaluates
operating performance. The Company has combined certain similar operating segments that meet applicable criteria established under SFAS No.
131, “Disclosures about Segments of an Enterprise and Related Information.”
Total revenue by segment includes intersegment sales, which are made at prices approximating those that the selling entity is able to obtain on
external sales. Segment operating profit is defined as total segment revenue less segment operating expenses. The following items have been
excluded in computing segment operating profit: corporate staff expense, net interest income (expense) associated with corporate debt facilities
and investments, income taxes, and other expense, net.
93 Financial Statements
Segment revenue and segment operating profit
(In millions) Year Ended December 31,
2004 2003 2002
Revenue :
Energy Production Systems $1,487.8 $1,136.2 $ 940.3
Energy Processing Systems 493.3 431.7 395.9
Intercompany eliminations (10.7 ) (2.8 ) (1.4 )
Subtotal Energy Systems 1,970.4 1,565.1 1,334.8
FoodTech 525.8 524.7 496.9
Airport Systems 279.8 224.1 245.1
Intercompany eliminations (8.3 ) (6.8 ) (5.3 )
Total revenue $2,767.7 $2,307.1 $2,071.5
Income before income taxes:
Segment operating profit :
Energy Production Systems $ 71.1 $ 66.0 $ 50.4
Energy Processing Systems (1) 27.4 30.3 27.1
Subtotal Energy Systems 98.5 96.3 77.5
FoodTech 36.8 44.0 43.3
Airport Systems 16.0 12.4 15.8
Total segment operating profit 151.3 152.7 136.6
Corporate items :
Gain on conversion of investment in MODEC International LLC 60.4 - -
Corporate expense (2)(3) (28.3) (24.3) (23.2)
Other expense, net (3) (17.5) (23.9) (20.9)
Net interest expense (6.9 ) (8.9 ) (12.5 )
Total corporate items 7.7 (57.1) (56.6)
Income before income taxes and the cumulative effect of a change in
accounting principle $ 159.0 $ 95.6 $ 80.0
(1) Energy Processing Systems operating profit in 2004 included a goodwill impairment charge of $6.5 million.
(2) Corporate expense primarily includes staff expenses.
(3) Other expense, net, comprises expense related to stock-based compensation, LIFO inventory adjustments, expense related to
employee pension and other postretirement employee benefits and foreign currency related gains or losses. Stock-based
compensation expense includes the recognition of stock-based awards over the vesting period. Beginning in 2004, the Company
recorded expense for stock options in accordance with SFAS No. 123 and prior period results were retroactively restated. Corporate
expense and other expense, net, increased by a total of $11.0 million and $10.3 million for 2003 and 2002, respectively, as a result of
the restatement.
Financial Statements 94
Segment operating capital employed and segment assets
(In millions) December 31,
2004 2003
Segment operating capital employed (1):
Energy Production Systems $ 362.1 $ 351.6
Energy Processing Systems 169.1 181.6
Subtotal Energy Systems 531.2 533.2
FoodTech 183.4 178.3
Airport Systems 77.7 50.0
Total segment operating capital employed 792.3 761.5
Segment liabilities included in total segment operating capital employed (2) 874.1 743.6
Corporate (3) 227.5 92.0
Total assets $1,893.9 $1,597.1
Segment assets:
Energy Production Systems $ 892.5 $ 736.5
Energy Processing Systems 303.2 294.1
Intercompany eliminations (1.6 ) (1.2 )
Subtotal Energy Systems 1,194.1 1,029.4
FoodTech 341.5 357.6
Airport Systems 130.8 118.1
Total segment assets 1,666.4 1,505.1
Corporate (3) 227.5 92.0
Total assets $1,893.9 $1,597.1
(1) FMC Technologies' management views segment operating capital employed, which consists of assets, net of its liabilities, as the
primary measure of segment capital. Segment operating capital employed excludes debt, pension liabilities, income taxes and LIFO
reserves.
(2) Segment liabilities included in total segment operating capital employed consist of trade and other accounts payable, advance
payments from customers, accrued payroll and other liabilities.
(3) Corporate includes cash, the MODEC, Inc. investment, LIFO inventory reserves, deferred income tax balances, property, plant and
equipment not associated with a specific segment and the fair value of derivatives.
95 Financial Statements
Geographic segment information
Geographic segment sales were identified based on the location where the Company's products and services were delivered. Geographic
segment long-lived assets include investments; property, plant and equipment, net; goodwill; intangible assets, net; and certain other non-current
assets.
(In millions) Year Ended December 31,
2004 2003 2002
Revenue (by location of customer):
United States $ 921.3 $ 871.1 $ 831.1
Norway 391.0 279.1 215.0
All other countries 1,455.4 1,156.9 1,025.4
Total revenue $2,767.7 $2,307.1 $2,071.5
December 31,
2004 2003 2002
Long-lived assets:
United States $314.1 $267.1 $261.2
Brazil 66.4 62.7 63.6
Netherlands 58.4 58.4 -
Norway 53.0 57.8 56.0
All other countries 129.3 123.9 97.0
Total long-lived assets $621.2 $569.9 $477.8
Other business segment information
(In millions) Capital expenditures Depreciation and amortization
Research and
development expense
Year Ended
December 31,
Year Ended
December 31,
Year Ended
December 31,
2004 2003 2002 2004 2003 2002 2004 2003 2002
Energy Production Systems $24.3 $45.5 $41.5 $30.8 $24.9 $17.5 $25.7 $19.9 $21.7
Energy Processing Systems 4.4 9.2 3.8 8.2 7.1 6.6 5.9 5.7 6.9
Subtotal Energy Systems 28.7 54.7 45.3 39.0 32.0 24.1 31.6 25.6 28.6
FoodTech 19.4 23.9 19.6 20.6 21.1 19.6 12.9 14.4 13.4
Airport Systems 1.1 0.3 0.5 1.9 2.1 2.4 5.9 5.3 5.8
Corporate 1.0 1.3 2.7 2.0 2.5 2.5 - - -
Total $50.2 $80.2 (1) $68.1 $63.5 $57.7 $48.6 $50.4 $45.3 $47.8
(1) Capital expenditures in 2003 included $15.0 million for the repurchase of sale-leaseback assets related to the following business
segments: Energy Production Systems ($5.0 million), Energy Processing Systems ($5.7 million) and FoodTech ($4.3 million).
Financial Statements 96
NOTE 21. QUARTERLY INFORMATION (UNAUDITED)
(In millions, except per share
data and common stock prices) 2004 2003
4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
Revenue $833.5 $700.0 $671.5 $562.7 $637.4 $560.1 $609.9 $ 499.7
Cost of sales and services $706.1 $574.8 $541.7 $450.2 $505.5 $445.8 $489.2 $ 403.1
Net income $ 57.2 $ 22.0 $ 24.1 $ 13.4 $ 21.3 $ 18.6 $ 21.1 $ 7.9
Basic earnings per share (1) $0.83 $0.32 $0.36 $0.20 $0.32 $0.28 $0.32 $ 0.12
Diluted earnings per share (1) $0.81 $0.32 $0.35 $0.20 $0.32 $0.28 $0.32 $ 0.12
Common stock price:
High $34.50 $33.99 $29.05 $28.51 $23.82 $24.60 $22.75 $20.98
Low $28.50 $28.07 $24.87 $21.97 $19.21 $20.20 $18.29 $17.94
(1) Basic and diluted EPS are computed independently for each of the periods presented. Accordingly, the sum of the quarterly EPS amounts
may not agree to the annual total.
In the fourth quarter of 2004, the Company recorded a gain on the conversion of its investment in MODEC International LLC amounting to $60.4
million ($36.1 million after tax) (Note 3), and a goodwill impairment charge amounting to $6.5 million ($6.1 million after tax) (Note 8). Also in the
fourth quarter of 2004, the Company recognized $11.9 million in tax benefits (Note 10) from a favorable judgment in a tax dispute with FMC
Corporation and the resolution of foreign tax audits.
In the third and fourth quarters of 2004, the Company recorded provisions of $4.4 million and $17.0 million, respectively, for anticipated losses on
the Sonatrach contract (Note 4).
Net income in 2003 has been restated to reflect the change in accounting for stock-based compensation (Note 1).
97 Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of FMC Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of FMC Technologies, Inc. and consolidated subsidiaries (the Company) as ofDecember 31, 2004 and 2003, and the related consolidated statements of income, cash flows and changes in stockholders' equity for each of theyears in the three-year period ended December 31, 2004. These consolidated financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of FMC Technologies, Inc. andconsolidated subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years in thethree-year period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.
As described in Note 1 to the consolidated financial statements, the Company changed its method of accounting for stock-based compensationin 2004, and its method of accounting for goodwill in 2002.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness ofFMC Technologies, Inc.’s internal control over financial reporting as of December 31, 2004, based on criteria established in InternalControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report datedMarch 10, 2005 expressed an unqualified opinion thereon.
Chicago, IllinoisMarch 10, 2005
Financial Statements 98
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined inExchange Act Rules 13a-15(f). Our internal control over financial reporting is a process designed under the supervision of the Chief ExecutiveOfficer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financialstatements for external purposes in accordance with generally accepted accounting principles. Under the supervision and with the participation ofour management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of ourinternal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring
management concluded that our internal control over financial reporting was effective as of December 31, 2004.
Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2004 has been audited byKPMG LLP, an independent registered public accounting firm, as stated in their report which is included herein.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of FMC Technologies, Inc.:
We have audited management’s assessment, presented in Management’s Annual Report on Internal Control over Financial Reporting, that FMCTechnologies, Inc. maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in InternalControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). FMCTechnologies, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinionon the effectiveness of the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluatingmanagement’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such otherprocedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Acompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurancethat transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being made only in accordance with authorizations of management anddirectors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, ordisposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or thatthe degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that FMC Technologies, Inc. maintained effective internal control over financial reporting as ofDecember 31, 2004, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, FMC Technologies, Inc. maintained,in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidatedbalance sheets as of December 31, 2004 and 2003, and the related consolidated statements of income, cash flows and changes in stockholders'equity for each of the years in the three-year period ended December 31, 2004 of FMC Technologies, Inc., and our report dated March 10, 2005expressed an unqualified opinion thereon.
Chicago, IllinoisMarch 10, 2005
Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control—Integrated Framework, our
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
99 Financial Statements
SELECTED FINANCIAL DATA
The following table sets forth selected financial data derived from our audited financial statements. Audited financial statements for the yearsended December 31, 2004, 2003 and 2002 and as of December 31, 2004 and 2003 are included elsewhere in this report.Financial data relating to periods prior to our June 2001 separation from FMC Corporation represent combined financial information carved outfrom the consolidated financial statements of FMC Corporation using the historical results of operations and bases of assets and liabilities of thebusinesses transferred to FMC Technologies, Inc. Our historical combined financial information does not necessarily reflect what our financialposition and results of operations would have been had we operated as a separate, stand-alone entity during the periods presented.
Effective January 1, 2004, we adopted the fair value recognition provisions of Statement of Financial Standards ("SFAS") No.123, "Accounting forStock-Based Compensation," using the retroactive restatement method described in SFAS No. 148, "Accounting for Stock-Based Compensation- Transition and Disclosure." The historical financial data presented here reflect the restated results.
($ In millions, except per share data)
Years ended December 31 2004 2003 2002 2001 2000
Revenue:
Energy Production Systems $ 1,487.8 $ 1,136.2 $ 940.3 $ 725.9 $ 667.9Energy Processing Systems 493.3 431.7 395.9 400.0 370.7Intercompany eliminations (10.7) (2.8) (1.4) (0.6) (1.3) Total Energy Systems 1,970.4 1,565.1 1,334.8 1,125.3 1,037.3FoodTech 525.8 524.7 496.9 512.9 573.3Airport Systems 279.8 224.1 245.1 299.8 267.2Intercompany eliminations (8.3) (6.8) (5.3) (10.1) (2.6)
Total revenue $ 2,767.7 $ 2,307.1 $ 2,071.5 $ 1,927.9 $ 1,875.2Cost of sales and services $ 2,266.3 $ 1,843.6 $ 1,654.2 $ 1,489.2 $ 1,422.8Asset impairment 6.5 - - - -Restructuring charges - - - 15.5 9.8Selling, general and administrative expense 340.4 312.6 274.8 298.2 293.3Research and development expense 50.4 45.3 47.8 54.9 56.7Total costs and expenses 2,663.6 2,201.5 1,976.8 1,857.8 1,782.6Gain on conversion of investment in MODEC International LLC 60.4 - - - -Minority interests 1.4 (1.1) (2.2) (1.2) 0.2
Income before net interest expense and income taxes 165.9 104.5 92.5 68.9 92.8Net interest expense 6.9 8.9 12.5 11.1 4.3
Income before income taxes and the cumulative effect of accounting changes 159.0 95.6 80.0 57.8 88.5Provision for income taxes 42.3 26.7 22.2 21.9 21.9
Income before the cumulative effect of accounting changes 116.7 68.9 57.8 35.9 66.6Cumulative effect of accounting changes, net of income taxes - - (193.8) (4.7) -
Net income (loss) $ 116.7 $ 68.9 $ (136.0) $ 31.2 $ 66.6
Diluted earnings (loss) per share (1):
Income before the cumulative effect of accounting changes $ 1.68 $ 1.03 $ 0.87 $ 0.54Diluted earnings (loss) per share $ 1.68 $ 1.03 $ (2.03) $ 0.47Diluted weighted average shares outstanding (2) 69.3 66.9 66.8 65.9
Common stock price range (1):High $ 34.50 $ 24.60 $ 23.83 $ 22.48
Low $ 21.97 $ 17.94 $ 14.30 $ 10.99Close $ 32.20 $ 23.30 $ 20.43 $ 16.45
Cash dividends declared $ - $ - $ - $ -
Number of shareholders of record 5,582 5,728 7,687 8,085
(1) Earnings per share and common stock prices have not been presented for years prior to 2001, the year of our spin-off from FMCCorporation.
(2) The calculation of average shares in 2001 gives effect to the issuance of 65.0 million common shares as if they were issued and outstandingon January 1, 2001.
Financial Statements 100
($ In millions, except per share data)
As of December 31 2004 2003 2002 2001 2000
Balance sheet data:Total assets $ 1,893.9 $ 1,597.1 $ 1,382.8 $ 1,444.4 $ 1,378.0Net debt (3) $ 39.0 $ 192.5 $ 202.5 $ 245.0 $ 23.3Long-term debt, less current portion $ 160.4 $ 201.1 $ 175.4 $ 194.1 $ -Stockholders' equity (4) $ 662.2 $ 443.3 $ 314.1 $ 424.7 $ 641.9
Segment operating capital employed (5) $ 792.3 $ 761.5 $ 685.3 $ 909.9 $ 933.1Order backlog (6) $ 1,587.1 $ 1,258.4 $ 1,151.0 $ 960.7 $ 644.3
Years ended December 31 2004 2003 2002 2001 2000
Other financial information:
Return on investment (7) 12.3% 12.4% 10.7% 8.6% 9.9%Capital expenditures $ 50.2 $ 65.2 $ 68.1 $ 67.6 $ 43.1Cash flows provided by operating activities of continuing operations $ 132.9 $ 150.4 $ 119.0 $ 76.3 $ 8.0
(3) Net debt consists of short-term debt, long-term debt and the current portion of long-term debt less cash and cash equivalents.
(4) For periods prior to June 14, 2001, the date of our initial public offering, stockholders' equity was comprised of FMC Corporation's netinvestment and accumulated other comprehensive (income) loss.
(5) We view segment operating capital employed, which consists of assets, net of liabilities, as the primary measure of segment capital.Segment operating capital employed excludes corporate debt facilities and investments, pension liabilities, income taxes and LIFO reserves.
(6) Order backlog is calculated as the estimated sales value of unfilled, confirmed customer orders at the reporting date.
(7) Return on investment (“ROI”) is calculated as income before the cumulative effect of changes in accounting principles plus after-tax interestexpense as a percentage of total average debt and equity. The calculations of 2004 and 2001 ROI use adjusted income, a non-GAAPmeasure. Below is a reconciliation of the non-GAAP measure to the most comparable GAAP measure:
Reconciliation of Non-GAAP Measures
Net Income Per Diluted ShareTwelve months ended December 31, 2001Income before the cumulative effect of a change in accounting principle,as reported in accordance with GAAP $ 35.9 $ 0.54
Less: Pro forma incremental interest expense (4.7) (0.07)
Add back: Restructuring and asset impairment charges 10.4 0.16 Income taxes related to separation from FMC 8.9 0.14
Adjusted income, a non-GAAP measure $ 50.5 $ 0.77
Net Income Per Diluted Share
Twelve months ended December 31, 2004Income as reported in accordance with GAAP $ 116.7 $1.68
Less: Gain on conversion of investment in MODEC International LLC (36.1) (0.52)
Add back: Goodwill impairment 6.1 0.09
Adjusted income, a non-GAAP measure $ 86.7 $ 1.25
Management reports its financial results in accordance with generally accepted accounting principles (“GAAP”). However, management believesthat certain non-GAAP performance measures utilized for internal analysis provide financial statement users meaningful comparisons betweencurrent and prior period results, as well as important information regarding performance trends. The non-GAAP financial measures may beinconsistent with similar measures presented by other companies. Non-GAAP financial measures should be viewed in addition to, and not as analternative for, the Company’s reported results.
Corporation
Corporate InformationCorporate Office
FMC Technologies Inc
1803 Gears Road
Houston TX 77067
281 591 4000
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contacted at the following address:
FMC Technologies Inc
Investor Relations
Maryann Seaman
200 East Randolph Drive
Chicago IL 60601
312 861 6414
281 405 4929
Stock Exchange
FMC Technologies, Inc. is listed on the
New York Stock Exchange under the
symbol FTI.
Annual Meeting
The Annual Meeting of Stockholders
will be held at 11:00 a.m. on Thursday,
April 28, 2005 at 200 East Randolph
Drive, Chicago, Illinois. Notice of the
meeting, together with proxy materials,
will be mailed to stockholders in
advance of the meeting.
Stock Transfer Agent
Address stockholder inquiries,
including requests for stock
transfers, to:
National City Bank
Corporate Trust Operations
PO Box 92301
Cleveland OH 44193-0900
Telephone 800 622 6757
Fax 216 257 8508
Email:
Form 10-K
A copy of the Company’s 2004 Annual
Report on Form 10-K, as filed with the
U.S. Securities and Exchange
Commission, is available at
www.fmctechnologies.com or upon
written request to:
FMC Technologies Inc
Corporate Communications
1803 Gears Road
Houston TX 77067
However, certain information required
under Parts II and III of the Company’s
2004 Annual Report on Form 10-K
have been incorporated by reference
from the Company’s Proxy Statement
for its 2005 Annual Meeting of
Shareholders. Certifications required by
Section 302 of the Securities Exchange
Act of 1934, as amended, are attached
as Exhibits to the Company’s 2004
Annual Report on Form 10-K.
The Company timely submitted the
CEO Annual Certification required by
Section 303A.12(a) of the New York
Stock Exchange Listed Company
Manual in 2004.
FMC Technologies was
incorporated in Delaware in 2000.
Auditors
KPMG LLP
303 East Wacker Drive
Chicago IL 60601
Additional Information
Additional information about
FMC Technologies – including
continually updated stock quotes,
news and financial data – is available
by visiting the Company’s Web site:
www.fmctechnologies.com
An email alert service is available by
request under the Investor Relations
section of the site. This service will
provide an automatic alert, via email,
each time a news release is posted to
the site or a new filing is made with the
U.S. Securities and Exchange
Commission. Information also may be
obtained by writing to Corporate
Communications in Houston.
FMC Technologies Inc
1803 Gears Road
Houston TX 77067
281 591 4000
fmctechnologies.com